Indian Bond Prices Climb on Expectations of RBI Intervention
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- Last Updated: 22 Jan 2026 at 2:25 PM IST
Indian government bonds attracted new buying interest on Wednesday, as traders anticipated the Reserve Bank of India (RBI) could expand liquidity support via open market operations (OMOs) and buy bonds in the secondary market to stabilise the debt market. The move helped yields edge lower, offering some relief amid persistent global pressures.
The benchmark 10-year 6.48% 2035 bond yield fell to around 6.6536% on Wednesday's trade, from Tuesday’s close near 6.6722%, as market participants added positions in hopes of central bank support. Bond prices and yields move inversely, so the drop in yield reflects renewed buying interest.
RBI Buying Expectations Support Yields
Traders said the market’s rebound was driven by hopes that the RBI would expand its secondary market purchase programme and conduct additional OMOs beyond the already scheduled operations, helping absorb excess government debt supply.
That optimism follows the increased sensitivity to liquidity conditions, especially with investors anticipating potentially substantial government announcements in the next Union Budget of borrowing. Traders believe proactive RBI action could help cushion the impact of higher supply on bond prices.
Moreover, Rajeev Pawar, treasury head at Ujjivan Small Finance Bank, said that the central bank may conduct OMOs worth up to ₹2 trillion ($20.18 billion) in February and March to bolster liquidity and support bond prices.
The central bank is also scheduled to buy bonds worth ₹500 billion on Thursday, the final tranche of the four tranches under its announced programme, and there is speculation that another round of purchases could be unveiled.
Market Signals Point to Rising Confidence in Central Bank Support
Recent market data has reinforced expectations of active RBI support. The clearing-house account indicated that investors in the category of other groups to which RBI belongs purchased ₹35.5 billion worth of government securities recently, further boosting hope that the central bank is already in action in the market.
Further evidence came from the derivatives market, where overnight index swap (OIS) rates softened, reflecting improved sentiment. The one-year OIS fell about 1.25 basis points to 5.5750%; the two-year rate eased 1 basis point to 5.69%; and the five-year OIS declined 2 basis points to 6.0775%, signalling growing expectations for sustained liquidity support.
Global Yields and Liquidity Remain a Check
Despite the supportive backdrop, gains in Indian bonds have been capped by elevated US Treasury yields, which remain near multi-month highs. Higher overseas yields tend to make emerging-market debt less attractive relative to safer assets, limiting the extent of local yield declines.
Swaps markets also reflected the cautious tone, with mixed moves in overnight index swap (OIS) rates suggesting that while near-term liquidity support is priced in, concerns about broader rate trajectories and liquidity dynamics persist.
The Key Takeaway
In this regard, investors ought to watch both the domestic liquidity drivers and the global rate trends as they weigh between yield opportunities and risk. The increased involvement of the RBI would be beneficial in bond pricing, but global tides and the supply of borrowing will continue to be significant in positioning a portfolio in the next few months.
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