On 2 April 2026, India’s ten-year government bond yields hit 7.12%—the highest in nearly two years. The bond yields have been hardening since June 2025, when the RBI cut the repo rate by 50 basis points in its MPC meeting. With the G-Secs crossing 7%, should you invest in fixed income? In this article, we will understand why the bond yields have risen, whether it is a good time to invest in fixed income, and which fixed income products you should invest in.
Why are the bond yields rising?
In the last two years, the yields on the 10-year government bonds have fallen and risen again. In April 2024, the yields were around 7.22%. When the RBI began cutting the repo rate, yields started falling and bottomed out at around 6.2% in June 2025. In its June 2025 MPC meeting, the RBI announced a 50 basis points cut in the repo rate. The market took that as either the end of the rate-cutting cycle or a long pause.
Post the meeting announcement, the 10-year G-sec yields started rising. Some of the reasons for the rise in G-secs yields include higher borrowing by the Central and State Governments, delay in the inclusion of Indian G-secs in Bloomberg global bond indices, selling of Indian G-secs by FPIs, an increase in yields on US treasury bonds, etc.
With the US-Iran War, oil prices have spiked. It has led to pressure on India’s balance of payments, fiscal deficit, Indian Rupee, etc. The market fears that the fiscal deficit may increase due to higher crude oil prices, costlier imports due to INR depreciation, a cut in excise duty, etc.
All the above factors have raised fears of an increase in inflation and pressure on 10-year G-secs, leading to higher yields. In early April, yields crossed the 7.00% mark, topping out at 7.12% before cooling off to some extent. India is not alone in G-secs yields going up. It is a global phenomenon, with G-secs yields going up in the US, Europe and many other countries.
Should you invest in fixed income?
Higher yields on fixed-income instruments like G-secs and corporate bonds offer investors an opportunity to benefit from them. Investors can consider adopting the accrual strategy.
With an accrual strategy, investors can consider allocating some funds to shorter tenure bonds of 1 to 3 years, hold them till maturity, and benefit from higher interest rates. The shorter tenure instruments are less sensitive to interest rate movements.
Investors can consider a combination of Government bonds, high-quality AAA-rated corporate bonds, and some exposure to AA/A rated corporate bonds. While G-secs yields are in the 6.95% to 7.05% range, AAA-rated corporate bonds are offering yields in the 7.50% to 7.75% range.
If an individual wants to invest through mutual funds, they can choose from a short-term fund, a medium-term fund, a dynamic bond fund, a corporate bond fund, or a banking and PSU debt fund, etc. It is best to consult a financial advisor who can analyse your needs and accordingly recommend a suitable fund.
For a long-term investment tenure, an individual can consider G-secs, corporate bonds with a tenure of 5 years or more. If an individual wants to invest through mutual funds, they can consider a gilt fund.
G-secs or corporate bonds with a longer tenure are sensitive to interest rate changes. When interest rates rise, the bond prices fall, and vice versa. The longer the bond tenure, the more the sensitivity to interest rates. Currently, yields are rising, and as a result, the bond prices are falling.
If you invest in G-secs, corporate bonds, gilt fund, etc., you will benefit from the higher coupon payments. But if yields continue to rise, you will face notional losses due to a fall in the bond prices. However, once yields stabilise and fall, the notional losses will be reversed, and you will make a profit.
Will the RBI hike interest rates?
Whether the RBI will hike interest rates or not depends on how inflation behaves. In the April 2026 Monetary Policy Committee (MPC) meeting, the RBI kept interest rates unchanged. In Financial Year 2026-27, the RBI expects the inflation rate to average 4.6%, with the quarterly projection as follows.
| Quarter | Inflation projection |
| Quarter 1 | 4.0% |
| Quarter 2 | 4.4% |
| Quarter 3 | 5.2% |
| Quarter 4 | 4.7% |
The table above shows that the RBI expects the inflation rate to accelerate from 4% in the first quarter to 5.2% in the third quarter before cooling to 4.7% in the fourth quarter. However, the inflation rate is within the RBI’s target range of 4% with a +/-2% tolerance band. So, if inflation stays within the target range, there will be no need for the RBI to hike interest rates.
The RBI mentioned that the US-Iran War and the resulting volatility in crude oil and metal prices need to be watched for their impact on inflation. The RBI also mentioned the possibility of El Nino conditions and their adverse impact on the monsoon. A below average monsoon or its uneven distribution can adversely impact food production & prices, and stoke inflation. So, the impact of crude oil prices, a depreciating currency, adverse monsoon, etc., on inflation needs to be watched. Any RBI action on interest rates will depend on how inflation behaves: whether it rises, by how much, and stays higher for how long.
What should be the fixed income strategy?
Currently, G-secs yields have risen, crossing 7%, which are attractive. To benefit from the higher yields, an investor can consider an accrual strategy and invest in short-term instruments with a tenure of up to 3 years.