India 10-year benchmark government bond yield at 6.3215% vs previous close 6.3053%

India 10-year benchmark government bond yield at 6.3215% vs previous close 6.3053%

India's 10-year government bond yield climbed to 6.3215% on Wednesday, up from the previous close of 6.3053%. This increase was largely driven by the Reserve Bank of India's (RBI) decision to withdraw more liquidity from the banking system through a variable rate reverse repo auction worth 1 trillion rupees ($11.66 billion) [1].

The RBI's move comes as part of its ongoing efforts to manage liquidity in the banking system. On July 4, the central bank withdrew 1 trillion rupees through a seven-day reverse repo. The daily average liquidity surplus has stood at around 3.85 trillion rupees so far this month, which is over 1.5% of total deposits in the banking system [1].

While the 10-year benchmark bond yield has seen a modest increase, the five-year 6.75% 2029 bond may see a more significant dip. A trader at a private bank noted that the market was not expecting the RBI to move to shorter tenor reverse repo so soon, potentially impacting treasury bills and up to five-year papers [1].

The Reserve Bank of India's actions have also led to a shift in investment strategies. Indian mutual funds and insurance companies are increasingly favoring an accrual strategy, focusing on earning returns through interest payments rather than capital gains. This has led to a rise in corporate bond yields, with the spread between corporate and government bond yields in the two to three-year tenors rising by around 20-30 basis points over the past month [2].

Meanwhile, the 10-year U.S. Treasury yield remained elevated at 4.4112%, reflecting ongoing global trade tensions and the potential impact of President Donald Trump's tariffs on various trading partners [1]. The U.S. Treasury yield has been on an uptrend as traders have pared bets on the quantum of rate cuts by the Federal Reserve this year following strong jobs data for June [3].

The Indian bond market has shown resilience despite the rise in U.S. Treasury yields, with traders closely monitoring the RBI's liquidity management actions. The benchmark 10-year bond yield stood at 6.2943% on Tuesday, indicating a narrow trading range as markets awaited a firm domestic catalyst to drive further moves [3].

References:
[1] Reuters. "India's short-term notes may slip as RBI moves to withdraw more liquidity." TradingView. July 2, 2025. https://www.tradingview.com/news/reuters.com,2025:newsml_L4N3T607N:0-india-short-term-notes-may-slip-as-rbi-moves-to-withdraw-more-liquidity/
[2] Reuters. "Stable Indian government bond yields push investors towards more attractive corporate bonds." Reuters. July 7, 2025. https://www.reuters.com/world/india/stable-indian-government-bond-yields-push-investors-towards-more-attractive-2025-07-07/
[3] Economic Times. "India bonds stuck in narrow range despite rise in US peers." Economic Times. July 8, 2025. https://m.economictimes.com/markets/bonds/india-bonds-stuck-in-narrow-range-despite-rise-in-us-peers/articleshow/122311461.cms