RBI Cash Boost, US Treasury Dip Push Indian Bonds Higher
Indian government bond yields dipped, tracking a slide in U.S. Treasury yields as weak economic data fueled bets on Fed rate cuts.
Indian government bond yields dipped, tracking a slide in U.S. Treasury yields as weak economic data fueled bets on Fed rate cuts.
Indian government bond yields slipped on Monday, tracking a decline in U.S. Treasury yields, while liquidity measures by the Reserve Bank of India (RBI) supported sentiment in domestic markets.
The benchmark 10-year Indian government bond yield fell to 6.6990% in early trade, down from its previous close of 6.7065%, as investors priced in expectations of monetary easing by the U.S. Federal Reserve and additional liquidity from the RBI.
A series of weaker-than-expected U.S. economic data has fueled expectations of multiple rate cuts by the Federal Reserve in 2025. The 10-year U.S. Treasury yield dipped to a two-week low, following disappointing figures on U.S. business activity, consumer sentiment, and home sales. Markets are now pricing in at least two Fed rate cuts this year, which has bolstered emerging-market debt, including Indian bonds.
“A string of poor economic indicators in the U.S. is increasing bets on a more accommodative stance from the Fed, which is translating into lower yields globally and aiding sentiment in India,” said a trader at a state-run bank.
On the domestic front, the RBI’s liquidity operations have played a significant role in easing market pressures. The central bank will conduct a three-year dollar/rupee buy-sell swap on February 28, injecting an estimated 870 billion rupees ($10.04 billion) into the banking system.
Since mid-January, the RBI has infused over 3.6 trillion rupees through a mix of open market operations (OMOs), secondary market bond purchases, and repo operations. This includes:
The liquidity boost comes as Indian banks face tight cash conditions amid tax outflows and year-end fund requirements.
With India’s inflation aligning with the RBI’s 4% target, there is increasing room for monetary policy adjustments to support growth. Minutes from the RBI’s latest policy meeting suggest that policymakers remain cautious but open to easing measures if economic conditions warrant it.
“Durable liquidity could remain in deficit in the range of 300–500 billion rupees, meaning further support from the RBI may be needed,” said Citi’s chief India economist, Samiran Chakraborty.
Market participants are now watching for further liquidity actions from the RBI in March, with expectations that open market purchases could reach 1 trillion rupees to maintain neutral liquidity levels.
Shorter-term Indian government bond yields also declined, benefiting corporate borrowers who rely on shorter-duration debt. Yields on four-to-five-year bonds fell by two basis points, reflecting improved market sentiment.
Meanwhile, the 1-year overnight index swap (OIS) rate dropped to a 30-month low, signaling expectations of a more accommodative policy stance in the coming months.
Key Takeaways:
Indian 10-year bond yield drops to 6.6990%, tracking U.S. Treasury movement.
Weaker U.S. economic data fuels expectations of two Fed rate cuts in 2025.
RBI injects liquidity through FX swaps, OMOs, and repo operations.
India’s inflation aligns with the 4% target, opening room for policy flexibility.
Shorter-duration bond yields ease, benefiting corporate borrowing costs.
As markets digest global and domestic economic signals, the trajectory of Indian bond yields will remain closely tied to global rate expectations and RBI policy moves in the coming months.
Leave a Reply