Reserve Bank of India moves OMO dates forward as 10-year yield hits 6.72%

Yield at highest level since March 2025; central bank also announces ₹50K crore VRR

The Reserve Bank of India (RBI) advanced its bond purchase via open market operations (OMOs) to January 29 and February 5, from the earlier dates of February 5 and February 12, 2026, after the yield on the 10-year benchmark government security (G-sec) surged to 6.72 per cent — its highest level since March 4, 2025.

 

The RBI will infuse ₹50,000 crore in each of the two OMO tranches. While the auction dates were advanced, the total amount of liquidity injected remained unchanged.

 

Market participants said advancing the OMO dates gives the RBI more flexibility to conduct additional operations. They added that the amount of liquidity injected was lower than expected, which pushed yields higher on Tuesday. 

 

The yield on the 10-year benchmark, the 6.48 per cent 2035 bond, rose to 6.72 per cent on Tuesday from 6.66 per cent on Friday.

 

On Tuesday, the RBI also announced a variable rate repo (VRR) auction of ₹50,000 crore for Wednesday (January 28).

 

“In 2025-26, despite a rate-cut cycle, yields remained elevated. In 2026-27 (FY27), at best, there is likely to be a prolonged pause, with no Bloomberg Global Aggregate Index inclusion and significantly higher supply,” said Gaura Sen Gupta, chief economist at IDFC First Bank.

 

“As a result, dependence on the RBI to bridge the demand–supply gap for G-secs will increase. Given the market’s forward-looking nature, these measures may only help stabilise yields, with a rally possible only if the Union Budget surprises with lower-than-expected borrowing,” she added.

 

Bond market participants said that despite softer inflation and a bias towards lower interest rates, a large bond supply is likely to keep yields elevated. They expect the 10-year benchmark yield to remain in the 6.6–6.7 per cent range until the borrowing announcement in the Budget.

 

“There were expectations of a larger OMO. But only ₹1 trillion was announced, and on top of that, a 90-day VRR was announced, which the market interprets negatively because it suggests no rate cut is expected soon. Also, buying momentum was lacklustre,” said a dealer at a primary dealership.

 

The six-member monetary policy committee reduced the policy repo rate by 25 basis points (bps) to 5.25 per cent in its December review, taking total cuts in this cycle to 125 bps. The next policy review is scheduled for February 4–6.

 

Market participants remained cautious ahead of the Union Budget for FY27 on Sunday (February 1). Dealers also observed the lack of positive triggers as they await the borrowing programme to be announced in the Budget. Traders were also selling to make room for a fresh supply of ₹32,000 crore of the 2035 government bond at Friday’s auction.

 

“Public-sector banks (PSBs) have become less active in the market. There are no fresh positive cues. Right now, it is better not to go for aggressive buying, especially of the 10-year paper,” said a dealer with a PSB.

 

Market participants said the banking system liquidity surplus continues to remain below 1 per cent of banks’ net demand and time liabilities due to weak government spending, despite the central bank’s continued efforts to inject liquidity.

 

Meanwhile, the rupee appreciated against the dollar on Tuesday, supported by a broadly weaker dollar and optimism around a landmark trade agreement between India and the European Union (EU), which is expected to cut tariffs on nearly all Indian exports.

 

The rupee closed at 91.72 per dollar, up 0.25 per cent from the previous close. “We expect the rupee to trade with a mild positive bias, supported by improved domestic sentiment following the India–EU free trade agreement, while weakness in the US dollar index could provide additional support,” said a dealer with a state-owned bank.