India bonds gain 6.94% yield as RBI drains record $11.16 trillion rupee liquidity surplus

Indian government bonds ticked higher on Tuesday as investors processed the Reserve Bank of India's temporary liquidity draining operations. The benchmark 6.94 percent 2036 bond yield closed at 6.9431 percent, down from 6.9607 percent on Monday. Trading activity occurred within a narrow range as traders weighed rising oil prices and the potential for future interest rate hikes. The Reserve Bank of India has been conducting variable rate reverse repo operations to absorb cash because excess liquidity in the banking system reached a record 11.16 trillion rupees on Sunday, up from 10.36 trillion rupees the previous day. This surplus was boosted by inflows from the central bank's dollar-attracting deposit scheme. Market participants noted some relief in observing the RBI using these reverse repo operations rather than adopting more stringent measures to combat inflation.