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Indian government bond prices rose after strong demand followed the RBI latest bond purchases and a global rally triggered by a US Federal Reserve rate cut. The 10-year benchmark yield eased to 6.61%, retreating from its highest level of the financial year. The RBI bought INR 500 billion worth of bonds at higher-than-expected prices and is set to conduct another similar purchase next week, supporting market sentiment. Global cues also helped, with US Treasury yields falling after the Fed 25-basis-point cut. Liquidity remains comfortable, though traders expect gradual tightening due to tax outflows. Overall, continued RBI support and global rate trends lifted demand for government securities.
Indian government bonds advanced on Thursday, buoyed by strong demand following the Reserve Bank of India's (RBI) latest round of debt purchases and a global rally triggered by the Federal Reserve's rate cut. The benchmark 10-year bond yield settled at 6.6122 per cent, easing from 6.6649 per cent recorded in the previous session, which had marked the highest closing level for the current financial year beginning April. Advertisement
The RBI purchased bonds worth INR 500 billion (USD 5.53 billion) at higher-than-anticipated cutoff prices, helping lift sentiment in the secondary market. The central bank is scheduled to conduct another INR 500 billion bond purchase next Thursday, reinforcing expectations of continued policy support. Market participants are also hopeful that the 10-year 6.33 per cent 2035 bond will be included in the upcoming round of open market operations (OMOs).
Meanwhile, average surplus liquidity in the banking system so far this week stood at approximately INR 1.67 trillion, compared with INR 2.25 trillion (USD 24.96 billion) in the preceding week. Puneet Pal, head of fixed income at PGIM India Mutual Fund, remarked that liquidity was expected to remain steady during the first half of December but could tighten gradually due to tax-related outflows. He added that markets were anticipating total OMO purchases of around INR 2 trillion for the remainder of FY26.
The RBI has already conducted a record INR 3.16 trillion in debt purchases during the current financial year, underscoring its focus on supporting orderly market conditions.
Globally, the Federal Reserve's 25-basis-point rate cut on Wednesday contributed to lower U.S. Treasury yields, improving risk sentiment across markets. The yield on the U.S. 10-year Treasury fell 4 basis points to 4.1468 per cent during Asian hours.
Interest rate derivatives mirrored the movement in global yields. India's overnight index swap (OIS) rates edged lower, tracking declines in U.S. Treasuries and renewed appetite for government securities following the Fed's decision. The one-year OIS rate slipped 1.25 basis points to 5.4650 per cent, while the two-year swap dipped 1.75 basis points to 5.56 per cent. The five-year OIS rate settled at 5.92 per cent, down 3.75 basis points.
Source - Reuters
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