Indian Bond Yields Rise Amid RBI Policy and Weak Rupee

Indian government bond yields saw a rise on Monday morning as investors stayed cautious after the Reserve Bank of India (RBI) made its monetary policy decision. The benchmark 10-year bond yield was recorded at 6.7284%, slightly up from the previous close of 6.7043%.

Weak Rupee and U.S. Trade Fears Impact Sentiment

The Indian rupee hit a new lifetime low of 87.95 against the U.S. dollar, largely due to concerns over potential new U.S. trade tariffs. This contributed to negative sentiment in the bond market, adding to the pressure from the central bank’s recent monetary policy.

RBI’s Policy Decision and Currency Decline

The RBI lowered its key interest rate by 25 basis points last Friday to support economic growth. Despite this move, RBI Governor Sanjay Malhotra stated that the central bank will closely monitor market conditions and take measures to ensure liquidity remains stable. However, no additional measures were announced.

Impact of U.S. Yields

U.S. bond yields also increased following strong job data revisions and a lower unemployment rate, indicating a robust labour market. This raised expectations that the U.S. Federal Reserve might not need to make aggressive rate cuts, which added further pressure to the bond market.

Bond Market Outlook

The RBI’s decision not to include a note for the second open market bond auction under its liquidity infusion package, scheduled for this week, further dampened investor appetite for bonds. Market participants are now expecting the RBI to focus on primary auctions to infuse liquidity instead of continuing secondary market purchases, which had previously included a significant portion of the benchmark bond.

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