Bonds rally on RBI bond purchase, UDAY clarification

Indian bonds rallied on Friday after the Reserve Bank of India (RBI) announced a $1.75 billion bond purchase and said it would not allow debt issued by state governments as part of a bailout scheme for power companies to hit markets.

The benchmark 10-year bond yield was down 5 basis points at 7.81%, after falling as much as 10 basis points earlier.

The RBI said late on Thursday it would purchase bonds up to 120 billion rupees ($1.75 billion) through open market operations on March 3.

In addition, the central bank said on Friday state governments would issue debt under the so-called UDAY scheme to banks under a private placement, thus keeping the bonds outside of markets.