Govt bond yields decline on hopes of RBI's support through bond purchases

Government bond yields dropped as traders anticipated Reserve Bank of India support through open market purchases, with expectations of an OMO calendar announcement boosting sentiment

Government bond yields declined on Monday as market sentiment improved on expectations of the Reserve Bank of India’s support through bond purchases, dealers said. Market participants speculated that the central bank had bought bonds worth ₹6,357 crore on Friday via NDS-OM platform.

 

The yield on the benchmark 10-year government bond settled at 6.49 per cent, against the previous close of 6.51 per cent.

 

“The bond yields fell because the market was expecting that RBI will be there to buy bonds,” said a dealer at a primary dealership.

 

“The RBI was there in the previous week, and the market is expecting an Open Market Operation (OMO) announcement sooner than earlier expectations,” he added.

 

The RBI could have bought around ₹3323 crore worth of government bonds on Monday.

 

Discussions around a possible OMO (Open Market Operations) calendar have been in the market since last week, after the Reserve Bank of India signalled its discomfort with elevated yields. Some participants expect the RBI to announce an OMO purchase calendar for the January-March period at its next policy review on December 5, as hopes of a rate cut have diminished amid expectations of strong GDP growth during the second quarter.

 

A note from IDFC First Bank said banking system liquidity has remained below the 1 per cent of the net demand and time liabilities (NDTL) threshold since September 2025, driven primarily by RBI’s foreign exchange operations.

 

RBI has been selling dollars in the last few months to curb volatility.

 

“Despite support from OMO purchases and CRR cuts, core liquidity has declined sharply and is projected to fall below 1 per cent of NDTL by Q4FY26 without further intervention. A durable liquidity infusion of ₹ 2 trillion is estimated to be necessary to maintain adequate liquidity and support monetary transmission,” the note said.

 

“The timing of liquidity infusion is expected to be in Q4FY26, when core liquidity falls below 1 per cent of NDTL,” it added.

 

Some expect the calendar to be announced in November itself, given the increased participation of the RBI in the bond market through bond purchases on the Negotiated Dealing System-Order Matching (NDS-OM) platform, an electronic trading system that facilitates transparent, order-driven transactions among banks, primary dealers, and mutual funds.

 

The RBI uses this platform to conduct its OMOs as part of its liquidity management strategy.

 

“The CCIL data shows that there has been bond buying by the RBI. The bond yields are now below 6.50 per cent (yield on the benchmark 10-year government bond), and it will trade towards 6.45 per cent,” said a dealer at a state-owned bank.

 

On October 31, the RBI cancelled the sale of a seven-year central government bond after investors sought yields around 6.50 per cent, which were higher than those on the new 10-year bond, levels the central bank found unacceptable.