India 10-Year Bond Yield Surges To 7.35% As RBI's ₹25,000 Crore OMO Sale, Rate Hike Rattle Markets
Indian government bond yields surged on Monday as RBI liquidity tightening intensified selling pressure. The benchmark 10-year yield opened at 7.3553% after the central bank announced a ₹25,000 crore bond sale and stricter CRR maintenance requirements. Investors also remained concerned about further interest rate increases following the RBI's policy stance change
Indian government bond yields climbed sharply on Monday, Oct 12, as the Reserve Bank of India's (RBI) measures to withdraw liquidity intensified selling pressure in the debt market.
The benchmark 6.94% government security maturing in 2036 opened at a yield of 7.3553%, compared with Friday's closing level of 7.2994%.
Investors remained cautious following the central bank's recent interest rate increase and its shift towards a calibrated tightening stance, which raised concerns about additional rate hikes.
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OMO Sale Adds Pressure On Bond Yields
On Oct 9, the RBI announced an open market operation (OMO) sale of government securities worth Rs25,000 crore, scheduled for Oct 13.
The operation will absorb liquidity from the banking system as market participants purchase the securities.
The central bank also increased the minimum daily cash reserve ratio (CRR) maintenance requirement for banks from 90% to 99%, effective Oct 16.
Although the overall CRR remains unchanged, the revised requirement limits banks' flexibility in managing daily reserves.
A primary dealership official said the additional bond supply and tighter liquidity conditions could encourage investors to demand higher yields.
The measures follow the RBI's Oct 7 decision to raise the repo rate by 25 basis points to 5.50%, alongside a shift from a neutral monetary policy stance.
10-Year Bond Yield Nears 2023 Levels
Government bond yields have risen for eight consecutive weeks, reflecting concerns about elevated crude oil prices and the future direction of monetary policy.
The benchmark yield gained approximately nine basis points last week, following an increase of around 45 basis points over the preceding seven weeks.
Comparable levels were recorded during the previous tightening cycle, when yields reached 7.46% in February and March 2023.
A bank treasury dealer said uncertainty surrounding inflation and possible further rate increases could discourage investors from taking longer-duration positions.
Market participants will closely monitor demand at Tuesday's OMO auction and the effect of tighter reserve requirements on banking liquidity.
These developments could influence the near-term direction of government bond yields.
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