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The rise in net supply comes at a time when US yields remain elevated, domestic inflationary pressures have picked up and the RBI is expected to begin a shallow rate-hiking cycle from October. Read more: Nifty sees worst September series in 25 years. What does October hold? On Tuesday, Indian government bonds rebounded, marking the end of a four-day downturn spurred by softer US Treasury yields and declining crude oil prices. Despite this rally, apprehensions linger over persistently high global yields and the risk of inflation. The Reserve Bank of India may soon increase rates, complicating the bond landscape further. Additionally, significant factors like banking system liquidity and debt supply continue to challenge the market. Against this backdrop, the bank expects demand for government securities to fall short of supply. "Demand for government securities is expected to undershoot supply by a wide margin given higher supply and tighter financial conditions," Gaura Sengupta, chief economist at IDFC First Bank said in a note on Tuesday. "And because credit growth remains strong, only replacement demand is expected from banks." The 10-year government bond yield has risen steadily over the past month, closing at 7.16% on Tuesday. Sengupta expects yields to rise further towards 7.25%, while traders see the 7.25% level as a key support, where stronger buying interest is likely to emerge and cap further upside in yields. Read more: D-Street stocks are breaking long-held supports as selloff deepens "We have moved to a clearly bearish duration stance. The combination of multiple factors like strong domestic growth, inflation risks, persistent surplus liquidity and the RBI's shift to OMO sales argues against carrying a large structural duration position," said Prashant Pimple, chief investment officer - fixed income at Baroda BNP Mutual Fund. "We would rather earn carry while retaining the ability to add duration when the market offers better entry points," he said. The trajectory of bond yields will also depend heavily on oil prices. While traders see 7.25% as a level where buying could re-emerge, that support may not hold if crude remains elevated around $110 a barrel. (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price
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