Steady as She Goes: RBI’s Tight Grip Keeps Bond Yields in Check

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India’s benchmark 10-year government bond yields saw marginal movement in early Thursday trading, reflecting the market’s cautious stance as the Reserve Bank of India (RBI) continues its liquidity withdrawal measures.

Key Highlights:

The yield on the 10-year benchmark bond (IN063335G=CC) slipped slightly to 6.2763%, compared to the previous close of 6.2873%.
Another widely tracked 10-year bond (IN067934G=CC) was little changed at 6.3622%, just below the prior session’s 6.3659%.
Traders expect yields to remain in a narrow range (6.27%–6.30%) as the RBI’s ongoing variable rate reverse repo (VRRR) auctions continue to drain excess liquidity from the banking system.

The RBI is set to conduct a significant seven-day VRRR auction worth 1 trillion rupees this week, signaling its intent to keep a lid on surplus funds and stabilize short-term rates.

Despite these liquidity operations, the banking system’s surplus remains elevated, with banks’ cash balances at 9.36 trillion rupees as of June 25.

The government’s surplus cash balance with the RBI was nil for auction on June 25, indicating active liquidity management.

On the same day, Indian banks borrowed 13.09 billion rupees via RBI facilities, while the central bank provided 64.34 billion rupees in refinance.

Market sentiment remains cautious, with traders watching for further RBI actions and global cues, especially U.S. Treasury movements and oil prices, which could influence longer-term yields.

The RBI’s recent monetary policy stance, including a repo rate cut and a shift to a neutral outlook, aims to balance growth and inflation, but the liquidity withdrawal is keeping upward pressure on short-term rates.

Source: Reuters