Indian Bonds Weaken Amid Large State Borrowing, Following RBI Policy Move
Large debt supply and lack of fresh liquidity measures keep traders cautious despite steady policy rates.
India, Feb 09 : Indian government bond yields moved higher in early trading on Monday as markets reacted to an increase in state borrowing and the Reserve Bank of India’s (RBI) decision to refrain from announcing additional liquidity support last week.
The benchmark 6.48% 2035 bond yield stood at 6.7609% at 10:30 a.m. IST, rising from Friday’s close of 6.7363%. The previous session had already seen the sharpest single day jump in yields in six months, reflecting growing unease among investors.
Adding to the pressure, states are set to raise ₹486.15 billion through bond auctions on Tuesday about ₹60 billion more than initially planned and the largest issuance so far this financial year. Market participants say the surge in supply, combined with uncertainty over central bank support, has made investors wary.
Traders noted that without a clear signal from the RBI on debt purchases, it remains difficult to predict how high yields could climb. The central bank kept the repo rate unchanged, citing a favourable economic outlook, but banks had hoped for regulatory adjustments to ease liquidity amid deposit constraints and strong credit demand.
Despite the RBI cutting rates by 125 basis points since February 2025 and purchasing a record ₹7.2 trillion worth of bonds this fiscal year, the 10-year yield continues to hover near last year’s levels, underscoring persistent market strain.
Meanwhile, shorter tenure overnight index swap (OIS) rates were largely stable. The one year OIS rate was at 5.53%, the two-year at 5.71%, while the five-year rate edged up by two basis points to 6.2050%, mirroring the upward trend in bond yields.
