India’s 10-year government bond yield climbed to around 6.97%, hovering near a three-month high, as abundant surplus liquidity and expectations of further liquidity-absorption measures by the Reserve Bank of India (RBI) dampened market sentiment. Banking system liquidity expanded to a record INR 10.73 trillion, prompting the RBI to intensify efforts to absorb excess funds after its INR 7 trillion, 30-day variable-rate reverse repo auction drew weak interest. The operation attracted bids of only INR 2.59 trillion, leading the central bank to follow up with an additional INR 5 trillion overnight reverse repo.
At the same time, rising global crude oil prices and higher U.S. Treasury yields exerted additional pressure on Indian bonds, with Brent crude trading near $97 per barrel. The benchmark 6.94% 2036 government bond yield closed at 6.9625% on Friday, up 5 basis points for the week and marking a third straight weekly increase. The subdued response to the RBI’s auction has also heightened concerns that the central bank may need to deploy more forceful measures to sterilize the surplus liquidity.
