India’s government bond market is set for a sustained year-end rally after the Reserve Bank of India announced a sizable liquidity injection, easing funding conditions and anchoring yields lower through the end of the fiscal year.
What the RBI Announced
The RBI will inject up to ₹2.90 trillion ($32.3 billion) over four weeks starting December 29, via:
- ₹2 trillion in government bond purchases
- A $10 billion USD–INR swap with a three-year tenor
This intervention will absorb more than 65% of upcoming government bond supply for the next quarter.
Why It Matters
The move is expected to:
- Keep bond yields structurally lower
- Support banks’ mark-to-market gains ahead of March year-end reporting
- Improve monetary policy transmission, ensuring rate cuts flow into the real economy
- Stabilise banking system liquidity, which has oscillated between deficit and surplus
With the 10-year yield ending the previous quarter at 6.57%, a close below that level would be a meaningful positive for banks, which are the largest holders of government securities.
Market Reaction
- 10-year benchmark yield fell to 6.55%, down 15 bps from the day’s high
- 5-year bond (6.01% 2030) yield dropped 17 bps to 6.32%
What Analysts Are Saying
“RBI measures confirm the central bank’s commitment to keep liquidity conditions easy. The pace of injections was a surprise and significantly higher than expected,” said Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership.
Alok Singh, head of treasury at CSB Bank, added that the 10-year yield could test 6.48% in the near term and drift toward 6.30% over the medium term, with scope for further RBI action in March.
Bottom Line
The RBI’s liquidity “gift” has strengthened expectations of a year-end bond rally, reinforced yield stability, and improved conditions for both banks and borrowers. For India’s bond market, the Santa Claus rally looks well supported — and potentially extendable into early 2026.