Indian bonds climb on RBI bond-buying optimism, Fed cut

MUMBAI: Indian government bonds surged on Thursday, as the Reserve Bank of India’s bond purchases along with a rally in U.S. Treasuries following a Federal Reserve rate cut boosted demand.

The benchmark 10-year yield settled at 6.6122%. It ended at 6.6649% on Wednesday, the highest closing level for the 10-year paper so far this financial year that started on April 1.

Bond yields rise when prices fall.

The RBI bought bonds worth 500 billion rupees ($5.53 billion) at higher-than-expected cutoff prices that lifted bonds in the secondary market. It is slated to buy bonds worth another 500 billion rupees next Thursday.

The market is also hopeful that the RBI may include 10-year 6.33% 2035 bond in next week’s open market operations (OMO).

The average surplus in India’s banking system liquidity so far this week stood at around 1.67 trillion rupees, compared with 2.25 trillion rupees ($24.96 billion) last week.

“Liquidity is expected to remain stable in the first fortnight of December, though it is expected to tighten incrementally due to tax outflows,” Puneet Pal, fixed income head, PGIM India Mutual Fund.

India’s RBI completes bond purchase aiding liquidity, demand

“The market is expecting RBI to conduct OMO purchases of 2 trillion rupees over the remainder of FY26.”

The RBI has made record debt purchases this financial year worth 3.16 trillion rupees.

Separately, the Fed cut rates by 25 basis points on Wednesday, pushing U.S. Treasury yields lower and boosting sentiment globally.

The U.S. 10-year Treasury note yield dropped 4 bps to 4.1468%, treading lower in Asian hours.

RATES

India’s overnight index swap rates dipped tracking U.S. Treasury yields and as demand rekindled for government bonds after the Federal Reserve lowered its key interest rate.

The one-year OIS rate fell 1.25 bps to 5.4650% and the two-year swap dipped 1.75 bps to 5.56%. The five-year OIS rate settled at 5.92%, down 3.75 bps.