Indian government bond yields hit 3-year high: What's the reason?
What's the story
The yield on India's benchmark 10-year government bond has hit a three-year high, reflecting a significant market shift. The rise comes after the Reserve Bank of India (RBI) announced plans to sell ₹25,000 crore worth of bonds to tighten liquidity. The move comes as the central bank has raised rates and shifted to calibrated tightening.
Market impact
Yield on benchmark 6.94% government bond
The RBI's decision to sell bonds and raise the minimum daily CRR maintenance requirement to 99% from 90% for banks has had a major impact on the market.
The yield on the benchmark 6.94% government security maturing in 2036 jumped to 7.3707%, its highest since March 2023.
This is up from Friday's close of 7.2994%, marking an eight-week-long upward trend with a total gain of 54 basis points during this period.
Strategy analysis
RBI's liquidity measures add to selling pressure
The RBI's liquidity measures have also added to selling pressure in the bond market.
The central bank announced a ₹25,000 crore open market operation (OMO) sale of government securities for October 13, and raised the minimum daily CRR maintenance requirement for banks to 99% from 90%, effective October 16.
While the overall CRR ratio remains unchanged, this higher daily requirement limits banks' flexibility in managing funds.
Yield trends
Bond yields on an 8-week upward trend
Bond yields have been on an upward trend for eight consecutive weeks, with the benchmark 10-year yield rising by around nine basis points last week to 7.2994% on Friday.
This was after the RBI's October 7 decision to raise the repo rate by 25 basis points to 5.50%, and shift its stance from neutral to calibrated tightening.
The yield has risen some 45 basis points over the past seven weeks amid high oil prices and interest-rate outlook concerns.