Shorter-duration government bonds led gains on Friday after the Reserve Bank of India’s monetary policy decisions, including the larger-than-expected 50 bps cut, were seen favouring this part of the yield curve, while the more liquid longer-end stayed subdued.
The yield on the benchmark 10-year bond was at 6.2087 per cent as of 11:20 am, compared with Thursday’s close of 6.1960 per cent.
The five-year 6.75 per cent 2029 bond yield was at 5.7654 per cent, after ending at 5.8514 per cent. Bond yields were volatile after the RBI announcement, with the five-year yield dropping to 5.6739 per cent, its lowest level since September 2021, and the 10-year benchmark yield easing to 6.1059 per cent, the lowest since July 2021.
“Finally, we can make out that the policy is good for the shorter tenor, as the deeper rate cut and more cash infusion will help, but the last hour or so was not a good time to be a bond investor,” a trader with a primary dealership said.
The Reserve Bank of India (RBI) cut its key repo rate to 5.50 per cent, a third consecutive reduction, as muted inflation provided space for policymakers to focus on supporting economic growth.
The authority has cut rates a cumulative 100 basis points in 2025 so far, starting with a quarter-point reduction in February.
Vishal Goenka, co-founder of bond trading platform IndiaBonds.com, termed the decision as a “hawkish deep cut by the RBI.”
He expects a large curve steepening as long-end yields will remain relatively unchanged.
The RBI also slashed the cash reserve ratio for banks by 100 basis points to 3 per cent in a phased manner, which will add to already surplus liquidity.
Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, said the sharp drop in CRR is likely to keep liquidity conditions suitably comfortable to ensure monetary transmission.
The overnight index swap (OIS) curve also steepened with the one-year OIS rate dropping 13 basis points to 5.40%. The five-year OIS rate remained largely unchanged at 5.61 per cent.
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Published on June 6, 2025
