The government bonds rose the most in over three years on Thursday, snapping three days of losses, as the central bank paid high yields in its sale of short-end bills, signalling its resolve to bolster the rupee by draining liqudiity.
The Reserve Bank of India, through two successive sales of bills in as many days at yields of over 11%, reinforced expectations of bond dealers that it would walk the talk in ensuring short-term rates remain high as the central bank tries to curb rupee speculation. RBI walks another tightrope on Friday when it auctions R15,000 crore ($2.54 billion) of government bonds.
Investors will demand high yields, while RBI would have to keep the government's borrowing costs manageable to help meet the fiscal deficit target of 4.8% of GDP for the financial year ended March 2014.
The benchmark 10-year bond yield fell 23 basis points on the day to 8.19%, its biggest single day fall since May 13, 2010, as per data.