Indian bonds slip on heavy state debt supply, post-RBI move

Indian government bonds slid in ‍early trade on Monday, weighed down by heavy state debt supply, while the ⁠market was still reeling from the central bank's decision last week to not provide any additional liquidity support.

The benchmark 6.48% 2035 bond yield was at 6.7609%, as of 10:30 ‌a.m. IST. The ‌yield ended at 6.7363% on Friday, and posted its biggest single-session spike in six months.

Indian states ‌aim to raise 486.15 billion rupees ($5.37 billion) through bond sales on Tuesday, a quantum that is 60 billion rupees higher than scheduled and the largest issuance so far this financial year.


"With no firm commitment from the central bank ​on debt buying, and state borrowing picking up, ​the market is on edge. No one can say where the ‌yields will ‍top out," a private bank trader said.

The RBI kept its ‍key repo rate unchanged on Friday, supported by a ‌positive economic outlook. While the rate pause was widely anticipated, traders also projected the central bank to announce measures to ease liquidity.

Banks had been urging the RBI to adjust certain liquidity regulations to address a deposit shortfall, amid rising bond yields as well as credit growth, five treasury officials said.

This has added to the challenges ‍for bond traders, who have been grappling with the pressure from continuous supply, as buying across investor segments slows.

The RBI has ‍cut rates ⁠by 125 bps ⁠since February 2025, and bought bonds worth a record 7.2 trillion rupees in this financial year, yet the 10-year government bond yield remains near levels seen last year.

RATES

India's shorter-duration overnight index swap rates were little changed, while the five-year swap rate saw paying pressure in line with bond yields.

The one-year OIS rate was at 5.53%, while the two-year rate was at 5.71%. The longer-duration five-year OIS rate was 2 bps higher at 6.2050%.