Relatively illiquid government bonds gained as investors looked for exposure to maturities similar to the benchmark 10-year bonds, but with much higher spreads.
The buying came after the RBI cut the Marginal Standing Facility rate by 25 bps to 8.75% on Tuesday, which has also lowered the cost of carrying as overnight rates fall.
The 8.28% 2027 bond yield was down 3 bps at 8.80%, the 8.20% 2025 bond yield down 4 bps at 8.94% and the 8.33% 2026 bond yield down 2 bps at 8.94%.
These bonds have a high spread over the 10-year benchmark despite being close in tenor, says a dealer. The benchmark 10-year bond yield is flat at 8.54%.
"We are seeing bonds which are yielding above 8.75% rally as the MSF rate has been cut to that level," says a dealer.
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