India bonds slide as RBI shuns liquid papers for next week’s debt purchase

MUMBAI: Indian government bonds fell in early deals on Wednesday after the central bank yet again went ahead with a set of illiquid papers for next week’s debt purchase, sidestepping the market’s demand for the inclusion of liquid notes.

The benchmark 10-year yield was at 6.6261% as of 10:00 a.m. IST after ending at 6.6137% on Tuesday.

Bond yields move inversely to prices.

The Reserve Bank of India will buy bonds worth 500 billion rupees ($5.55 billion) on Monday, which includes papers maturing in 2029 to 2053, but all the notes are illiquid and not traded frequently.

“For the second consecutive week, the RBI has been falling short of market expectations leaving us puzzled as to what could be the reason for not giving the 6.33% 2035 bond in OMO,” a trader with a primary dealership said.

Earlier this week, the RBI bought papers worth 500 billion rupees, but these notes were also largely illiquid.

The RBI is set to buy bonds worth 500 billion rupees again on January 22.

If the funds invested in liquid papers do not get freed up, there would not be much chance for a sustainable rally in prices, traders said.

This becomes important as India’s state and central governments are set to raise an aggregate of more than 8 trillion rupees in the current quarter, amid investor concerns about degrading demand-supply dynamics.

Indian bonds entered 2026 with a question mark over the appetite for a ramp-up in debt supply, despite the RBI’s support through regular bond purchases.

The RBI has bought bonds worth 4.71 trillion rupees so far in this financial year.