Bonds, bank shares rally after RBI leaves rates unchanged

MUMBAI (Reuters) - India's benchmark 10-year bond yields and overnight index swap (OIS) rates fell on Tuesday after the central bank left both interest rates and the cash reserve ratio on hold at its policy review, although the rupee weakened slightly.

Benchmark 10-year bond yields dropped 13 basis points to 8.03 percent from levels before the Reserve Bank of India announced its decision. The central bank recently unveiled measures to defend the currency by draining cash from the financial system.

Meanwhile 1-year OIS rates fell 11 bps to 9.20 percent, while 5-year OIS rates fell 7 bps to 8.26 percent from levels before the decision, according to pricing provided by dealers.

Banking shares gained, sending the NSE bank sub-index up up 1 percent from its previous close, compared with a 0.3 percent gain in the Nifty.

Yes Bank rose 2.1 percent while Axis Bank rose 2.1 percent.

However, the rupee weakened slightly to 59.71 from around 59.55 before the RBI's decision.

(Reporting by Mumbai markets team; Editing by Sunil Nair)