India Long Duration Bonds Surge on Dovish RBI Policy Bets – June 2025 Update

Indian government bonds rose in early Thursday trading, with gains led by longer-duration securities, as investors positioned themselves ahead of the Reserve Bank of India's (RBI) highly anticipated policy decision.

As of 10:00 a.m. IST, the yield on the benchmark 10-year bond had eased to 6.1966%, compared to the previous close of 6.2065%. Similarly, the five-year 6.75% 2029 bond yield dropped to 5.8461% from 5.8514%.

Bond yields move inversely to prices, meaning a drop in yields reflects higher demand and rising prices.

Traders cited a combination of factors behind the rally in long-duration bonds. "Bond prices could rally if there’s more than just a rate cut. That expectation is driving long build-up. Also, the decline in U.S. Treasury yields is having a positive impact on sentiment," said a trader with a primary dealership.

The RBI is scheduled to announce its monetary policy decision on Friday, with a 25 basis point (bp) rate cut widely expected. If delivered, this would mark the third consecutive rate reduction in 2025.

Dovish Policy Expectations Strengthen

With inflation remaining subdued, market participants believe the RBI has sufficient room to shift focus toward stimulating economic growth. The central bank has already cut policy rates by 50 bps this year and has injected approximately $100 billion into the banking system between December and May.

While a 25-bp rate cut is the consensus, some analysts argue for a more aggressive move. The State Bank of India (SBI) has called for a 50-bp cut to revitalize the credit cycle. Meanwhile, DBS expects a 25-bp cut on Friday, followed by another reduction in the second half of the year.

Liquidity Measures Also in Focus

Beyond the rate cut, traders are also eyeing potential liquidity-boosting measures from the RBI. Such moves could lend further support to short-term bonds.

Swap Market Update

Activity in the overnight index swap (OIS) market was muted early in the day. The one-year and two-year OIS rates remained untraded after closing at 5.54% and 5.43%, respectively. However, the five-year OIS, the most liquid tenor, showed some receiving interest, dipping to 5.62%, a key technical support level.