Indian government bonds bounced off their lows on Friday, with yields reversing course after the central bank rejected all bids for the seven-year note at a debt auction, signaling the discomfort of high borrowing costs.
The Reserve Bank of India planned to raise $1.25 billion from the sale of the 6.28 percent bond in 2032, but did not accept any bid. Instead, it sold other notes, including green bonds, worth a total of 210 billion rupees.
“With such a market, only the RBI could do something to revive sentiment and this was a good step in that direction, otherwise we would have seen more sell-off next week,” said Vijay Sharma, senior executive vice-president at PNB Gilts.
India’s 10-year government bond yield fell to 6.55 percent from the day’s high of 6.59 percent, while the 2032 seven-year bond yield fell 4 basis points to 6.42 percent.
Indian government bond yields have risen in recent sessions, especially after hawkish commentary from the Federal Reserve clouded the outlook for the US rate cut in December.
Moreover, the uncertainty surrounding the RBI’s liquidity policy and its own policy decision in December discourages investors from taking new positions even at high interest rates.
“Before the auction results, most market participants were willing to wait to enter at higher levels, but now we will have to see how things play out next week,” said a senior finance ministry official at a major private bank.
The riddle of green bonds
Meanwhile, markets were surprised to see the 2054 green bonds selling 5 basis points lower than the 7.24 percent 2055 bond.
“Investors are also participating in green bond issuance, from both government and private companies, as awareness increases and regulators encourage participation,” said Ritesh Taksali, chief investment officer at Edelweiss Life Insurance.
Most market participants said the issuance was largely underwritten by a large state-owned insurance company, and such demand may be a one-off event that is unlikely to help the green bond market grow in terms of liquidity and tradability, they said.
The government should follow the green bond reissuance concept, which will help in increasing liquidity and commanding a premium, Taksali said.
Market participants have long called for incentives to invest in such papers, such as offering tax breaks or other business benefits.
Published on October 31, 2025
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