Indian Mutual Funds Set to Sell More Government Bonds After $4.5 Billion Sell-Off Since July as RBI Turns Hawkish

Indian mutual funds are set to sell more government bonds after offloading $4.5 billion since July, four fund managers told Reuters, in a report carried by The Hindu on 12 October 2026.

Quick Facts

Sold since July	$4.5 billion of government bonds
Net sales after the rate rise	₹51 billion (about $527 million) in three sessions
Sales in July-September	₹378 billion
10-year yield	Close to 7.35 per cent, highest in nearly three years
5-year yield	Above 7.05 per cent, up almost 70 basis points in two months

Why They Are Selling

The Reserve Bank of India raised rates for the first time in nearly four years and signalled further increases as inflation rises, which has raised expectations of a longer, steeper rate-tightening cycle.

“The policy tone sounded more cautionary on inflation generalisation than growth outlook, giving it a hawkish tilt,” said Amit Somani of Tata Asset Management, who expects long-term bond yields to rise to 7.20-7.40 per cent.

Vikas Garg of Invesco Mutual Fund listed global rate hikes, multi-decade high global bond yields, expectations of an earlier-than-anticipated domestic rate-hike cycle and uncertainty in energy markets as reasons funds trimmed government bond exposure.

The RBI’s Own Sales

Fund managers said heavy open market sales of bonds by the RBI, and the risk of a repeat, have altered demand-supply dynamics. The RBI sold bonds worth ₹1 trillion last month, its highest net sale for any financial year in over a decade.

Where the Money Is Going

• Axis Mutual Fund prefers one- to three-year high-quality corporate bonds
• Aditya Birla Sun Life AMC likes ultra-short-term debt
• Bandhan Asset Management has cut its weighted average bond duration to under a year, from about 12 years
• Axis may add duration only when the rate-hiking cycle progresses and yields become more attractive

Why It Matters

Falling demand from mutual funds for longer-dated bonds can keep yields high, which raises borrowing costs for the government and companies.

Featured image: The BSE building and a Dalal Street sign in Mumbai (file photo). Photo by an unknown author, licensed under CC BY-SA 3.0, via Wikimedia Commons.