India 10-Year Bond Yield Hits 3-Year High Above 7.37% After RBI Liquidity Measures
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India’s benchmark 10-year government bond yield climbed to a three-year high of 7.3707% on October 12 as RBI measures to tighten banking-system liquidity added to selling pressure in the bond market.
India’s benchmark 10-year government bond yield climbed to its highest level in three years on Monday, October 12, as the Reserve Bank of India’s latest measures to tighten liquidity added to selling pressure in the debt market.
The yield on the benchmark 6.94% 2036 government bond rose to 7.3707%, the highest since 2023, from 7.2994% on Friday. The latest move extends an eight-week rise in yields, with the benchmark gaining 54 basis points over the period.
The sell-off comes as the RBI prepares to sell ₹25,000 crore of government bonds on Tuesday, October 13, while also requiring banks to maintain 99% of their daily cash reserve requirement from October 16, up from 90% currently. The measures have raised concerns about tighter banking-system liquidity and weaker demand for government securities, coming days after the central bank raised the repo rate for the first time in nearly four years.
RBI ₹25,000 Crore Bond Sale Adds To Yield Pressure
The RBI’s ₹25,000 crore open market operation sale on October 13 will add government bonds to the market while absorbing liquidity from the banking system. At the same time, the higher daily CRR maintenance requirement will leave banks with less flexibility in managing their cash balances.
Banks are major buyers of government securities, making liquidity conditions an important factor for the bond market. Tighter liquidity can reduce the funds available to buy government debt, putting pressure on bond prices and pushing yields higher.
The measures come shortly after the RBI raised its key policy rate and indicated that further increases could follow. The shift has changed expectations in the bond market after a period when surplus liquidity had remained high.
The latest steps also mark a change from the RBI’s recent policy meeting, when no fresh measures were announced to absorb surplus liquidity. RBI Governor Sanjay Malhotra had then indicated that the increase in surplus cash in the banking system was likely to be temporary.
India 10-Year Bond Yield Rises For Eighth Straight Week
The benchmark 10-year yield has now risen for eight consecutive weeks, gaining 54 basis points over the period and reaching 7.3707% on Monday.
The bond market is also dealing with pressure from elevated crude oil prices. Brent crude remained above $100 a barrel, keeping inflation and government finances in focus given India’s dependence on imported oil.
Investors are also awaiting India’s September retail inflation data due later on Monday. A Reuters poll cited by The Economic Times expects consumer inflation at 5.4% year-on-year.
Rising bond yields were also among the pressures facing the equity market on Monday. The Sensex and Nifty erased their early gains and moved lower during the session as investors weighed tighter liquidity, foreign institutional investor selling and the rise in government bond yields.
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This article is for informational purposes only and should not be considered investment advice from Kotak Neo. For compliance T&C and disclaimers, Visit www.kotakneo.com/disclaimer
Rochelle Britto has spent 8+ years decoding India's markets, businesses, and consumer economy, reporting for ET Prime and Times Internet along the way, covering the stories behind the numbers.
A Mumbai native and perpetual planner of the next holiday, she stays far, far away from the eternal question, “Where are we going next?” When she's not chasing headlines, she's chasing new cultures, open roads, and a bit of quiet in nature.
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