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Indian government bonds strengthened as the RBI’s bond purchases coincided with a global boost from the U.S. Federal Reserve’s rate cut. The 10-year yield fell to 6.6122% from its recent high, reflecting rising bond prices. The RBI purchased 500 billion INR in bonds and plans a similar purchase next week, with the possibility of including the 10-year 2035 bond in open market operations. Banking system liquidity remained stable but slightly lower than last week, and Indian OIS rates also eased, indicating renewed investor demand for government securities.
Indian government bonds gained momentum as the Reserve Bank of India (RBI) continued its aggressive bond-buying program, supported by a global sentiment boost following a U.S. Federal Reserve interest rate cut. The benchmark 10-year government bond yield settled at 6.6122%, easing from 6.6649% in the previous session, which had been the highest closing level this financial year starting April 1. As bond yields move inversely to prices, the decline in yield reflected rising bond prices. Advertisement
The RBI purchased bonds worth 500 billion INR (USD 5.53 billion) at higher-than-expected cutoff prices, supporting activity in the secondary market. Another 500 billion INR purchase is scheduled for next Thursday. Market participants are also anticipating that the RBI may include the 10-year 6.33% 2035 bond in its upcoming open market operations (OMO), which could further strengthen liquidity.
Banking system liquidity has averaged around 1.67 trillion INR this week, compared with 2.25 trillion INR (USD 24.96 billion) last week. Puneet Pal, head of fixed income at PGIM India Mutual Fund, highlighted that liquidity is expected to remain stable through the first half of December, though tax-related outflows may tighten it slightly. Analysts expect the RBI to conduct OMO purchases totaling 2 trillion INR over the remainder of FY26. So far, the central bank has made record debt purchases of 3.16 trillion INR this financial year, reflecting an ongoing commitment to market stability.
Globally, the U.S. Federal Reserve’s 25 basis point rate cut lowered U.S. Treasury yields, boosting investor sentiment. The U.S. 10-year Treasury yield dropped 4 basis points to 4.1468%, moving lower during Asian trading hours. This global shift renewed interest in Indian government securities, adding to the upward momentum.
Indian overnight index swap (OIS) rates also moved lower, mirroring the decline in U.S. yields and stronger demand for domestic government bonds. The one-year OIS rate fell 1.25 bps to 5.4650%, the two-year rate dropped 1.75 bps to 5.56%, and the five-year rate declined 3.75 bps to 5.92%, signaling stable borrowing costs for short- and medium-term debt.
Source Reuters
5th Jun, 2025
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