Indian bonds rise on U.S. Treasury rally, ample cash

MUMBAI: Indian government bonds rose on Monday, following a surge in U.S. Treasuries and comfortable domestic liquidity, though lingering supply concerns contained the advance.

The benchmark 6.48% 2035 bond yield settled at 6.6642%, down from 6.6799% on Friday. Longer-duration securities’ yields eased the most, with the 15-year yield at 7.068%, down around 4 basis points, while the 40-year bond yield was at 7.4520%, down 4.5 bps.

Bond yields move inversely to prices.

The 15-40 year bond yields have risen 40-50 basis points so far in fiscal year 2025-26, even after the Reserve Bank of India delivered 100 basis points of interest rate cuts, due to patchy demand from insurers and pension funds and rising supply worries.

Traders said that current yield levels were attractive for re-entry, especially with liquidity back in surplus and reduced near-term supply after New Delhi conducted a debt switch operation.

Investors still flagged that sustained easing in yields may require support from the RBI via buybacks, open market operations, or steps to shorten supply duration.

“RBI liquidity support is necessary for yields to sustain at lower levels,” said Alok Singh, head of treasury at CSB Bank. “If liquidity stays in surplus, supply won’t be a challenge.”

Average daily system liquidity surplus so far in February stands at 2.62 trillion rupees, compared with 660 billion rupees in January.

During the day, local bonds tracked the U.S. debt market, with the 10-year U.S. Treasury yield down about 15 bps since last week.

It fell to multi-month lows near 4.05% on Friday, after data released post-India market hours, showed U.S. retail inflation rose 0.2% in January versus 0.3% in December.

Rates

India’s overnight index swap (OIS) rates declined, tracking a drop in U.S. Treasury yields.

The one-year OIS rate was down 1.25 bps at 5.49%, while the two-year rate fell 2.25 bps to 5.5950%. The five-year OIS rate shed 4 bps to 6.0250%.