In a surprising turn of events, Indian government bond yields experienced a significant decline on Tuesday morning. The unexpected news came from the Reserve Bank of India (RBI), which announced a robust bond-buying initiative that exceeded market expectations for the upcoming month. This announcement has sparked optimism among investors, with the benchmark 10-year bond yield dropping to 6.3537% by 10:15 a.m. IST, down from 6.3959% at the close of the previous trading session.

Market Reaction to RBI’s Announcement

Traders reacted swiftly to the RBI’s announcement, which revealed plans to purchase bonds worth 1.25 trillion rupees (approximately $14.70 billion) in four phases during the initial weeks of May. A trader from a private bank noted, “The initial dip in yields was anticipated, with the benchmark reaching 6.32%. However, we can expect some consolidation around these levels before any substantial rally takes place.”

• Key updates:
  • 10-year bond yield reached 6.32% at market opening.
  • The RBI’s bond purchases are aimed at improving market sentiment.

Recent Yield Trends

On Monday, the 10-year bond yield had surged to a near two-week high of 6.4029% amid concerns that the RBI might pause its bond purchases ahead of its dividend announcement, typically expected by the end of May. However, recent developments have shifted expectations, with investors now forecasting that the benchmark yield could test 6.30% soon, assuming no adverse news emerges.

The upcoming issuance of a new 10-year bond by New Delhi on Friday, intended to replace the current benchmark, is also contributing to the positive sentiment among investors.

Current Market Liquidity

India’s banking sector is currently experiencing a liquidity surplus slightly below 1 trillion rupees. Additionally, later in the day, the RBI plans to purchase bonds valued at 200 billion rupees, further increasing its total purchases for April to 1.20 trillion rupees.

Decline in OIS Rates

In response to the RBI’s liquidity injection announcement, India’s overnight index swap (OIS) rates saw a decline, reflecting a strong receiving bias that could facilitate further rate reductions. The one-year OIS rate fell by 6 basis points to 5.66%, the two-year rate also dropped 6 basis points to 5.51%, and the five-year rate decreased by 6 basis points to 5.64%.

• OIS Rate Changes:
  • One-year OIS: 5.66% (down 6 bps)
  • Two-year OIS: 5.51% (down 6 bps)
  • Five-year OIS: 5.64% (down 6 bps)

As the market continues to absorb these developments, the outlook for Indian bonds remains cautiously optimistic, with traders closely monitoring the situation for any new triggers.

For real-time updates on bond yields and market analysis, you can check platforms like Moneycontrol or Bloomberg.