India long duration bonds rise on bets of dovish RBI policy

Indian government bonds rose in early deals on Thursday, led by longer-duration papers, as traders added positions a day before the central bank is widely expected to deliver a policy rate cut.

The yield on the benchmark 10-year bond was at 6.1966% as of 10:00 a.m. IST, compared with the previous close of 6.2065%. The five-year 6.75% 2029 bond yield was at 5.8461% after ending at 5.8514%.

Bond yields move inversely to prices.

"Bond prices could rally if there is something more apart from a rate cut, which is leading to some long build-up. Also, Treasury yields have come down and that is having a sentimental impact," a trader with a primary dealership says.


The Reserve Bank of India's policy decision is due on Friday when it is widely expected to cut interest rates by 25 basis points for a third consecutive time this year.

Muted inflation provides ample space to focus on boosting economic growth further, traders said.

The RBI has lowered rates by 50 bps in 2025 and has infused $100 billion into the banking system in the December-May period.

While most expect a 25-bp cut, the State Bank of India said the RBI should slash rates by 50 bps to jumpstart the credit cycle.

DBS is expecting a 25-bp cut on Friday, followed by another similar cut in July-December.

Some traders expect the RBI to undertake more liquidity-boosting measures, which will further support short-end bond prices.

RATES

There was not much activity in the overnight index swap (OIS) market. The one-year OIS rate and two-year OIS rate were not yet traded after ending at 5.54%, and 5.43% respectively.

However, the most liquid five-year OIS was seeing some receiving interest and was down to 5.62%, in the key technical support zone.