Twists, turns and OMOs: Why bond market investors must stay long on discipline

The Fed’s recent 25 bp rate cut and its announcement to stop shrinking its Treasury holdings mark a meaningful shift. The message: The era of quantitative tightening (QT) is ending, but the easing cycle remains cautious and data-dependent. The market may be relieved but remains on alert.

For India, this means lower external constraints on interest rates and yields but also heightened scrutiny of liquidity flows and FX pressures.

At home, a few developments stand out:

These dynamics mean the 10-year G-Sec yield may find a range around 6.35% – 6.60% but the curve shape will matter more as the RBI signals intent.

The rupee remains under pressure, and the RBI has been intervening via FX swaps and liquidity tools to cap sharp moves. On inflation, headline CPI is expected to trend around 4 % in FY26, though food inflation remains vulnerable given erratic monsoons and recent flood-linked disruptions in some states. Growth appears headed for ~6.5 % real, supported by capex and investment flows, but the central bank’s future ease will be data-driven. If the rupee weakens further or inflation spikes, rate cuts may get delayed.

In light of these cross-currents:

Bottom line: The Fed’s pivot gives Indian fixed-income markets a supportive backdrop, but the real play is domestic — balance sheet manoeuvres, liquidity injections and issuance discipline. In this phase, the most compelling strategy is to lean into accrual, layer in selective long-duration government bonds and pick credit judiciously — stay active, stay selective.

(Chirag Doshi is LGT Wealth India's CIO of Fixed Income Assets.)

Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.

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