Bond yields shot up on Tuesday and have largely remained elevated after a weakened mandate for Prime Minister Narendra Modi's party
The RBI has repurchased a total of Rs 24,979 crore worth of securities in four auctions, against a total notified amount of Rs 1.7 trillion
Foreign investors have piled on bonds this year and remained on the buying side on Tuesday, despite the unexpected election outcome hitting stocks
The rupee should open higher on Monday and appreciate over the next day or two but could face some resistance near 83.10, a foreign exchange trader at a state-run bank said
Sovereign bonds have already rallied in recent weeks, boosted by a reduction in short-term borrowings
Along with direct purchases, foreign investors have leaned on derivative proxies to gain exposure to Indian bonds
The gains will be capped as the central bank's record surplus transfer to the government has boosted market sentiment
Traders were also cautious after the 10-year US yield moved off its recent lows, but continued to remain around the 4.35 per cent mark.
The central bank said it would buy back Rs 60,000 crore worth of securities, maturing this financial year, on May 21
While overall credit growth is predicted to moderate in FY2025, domestic bond issuance is expected to rise, driven by attractive interest rates and potential foreign investment.
The selloff came on the day when the rupee fell by the most in six months
Traders reportedly adjusted positions in anticipation of an increase in state govt securities supply on Tuesday
For bulls who powered the massive rally, the tactical trade at the moment is to move into the bonds, whose appeal has been further burnished by the nation's improving finances
The original 'Fragile Five' which also included Turkey, South Africa and Brazil referred to nations perceived to be most at risk due to their heavy reliance on foreign investment to drive growth
It may be time to alter the balance in the Indian corporate bond market, which has been skewed towards 'AAA' and 'AA' rating categories for long now
Recent bond auctions saw bids that surpassed expectations, said Alok Singh, group treasury head at CSB Bank
Behind those record returns were bold bets on catastrophe bonds and other insurance-linked securities
The fall in US Treasury yields and foreign portfolio investor (FPI) inflows further aided rupee and bonds
"The muted reaction currently is due to weak global risk appetite," Sambor, who said inflows could rise if India becomes a part of other global indices
The inclusion is expected to spur staggered inflows of $22-$30 billion, analysts estimate