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The Indian bond market experienced significant movement on Monday as yields plummeted to levels not seen in nearly three years. The central bank's unexpected purchase of a substantial amount of bonds triggered this dramatic shift. Market analysts noted that the 10-year benchmark yield briefly dipped to 6.6465%, marking its lowest point since early 2022. By mid-morning, it had slightly recovered to 6.6775%. This downward trend was anticipated by traders who were waiting for the Reserve Bank of India (RBI) to make a move that would push yields below the critical 6.70% threshold.

The RBI's actions involved acquiring bonds worth approximately $1.18 billion in the secondary market during the week ending January 17th. This marked the first such operation by the bank in over three years and signaled its commitment to maintaining easy liquidity conditions. However, despite this intervention, heavy selling from state-owned banks limited further declines, with yields stabilizing within a narrow range of 6.66% to 6.68%. Looking ahead, market participants are closely watching the upcoming federal budget announcement on February 1st, which will provide crucial insights into fiscal deficit and borrowing targets. Expectations suggest that borrowing for the new financial year could range between 14 trillion and 14.5 trillion rupees, up slightly from the current year's figure.

India's central bank has demonstrated its willingness to support the bond market through strategic purchases, fostering an environment of stability and confidence. Such measures underscore the importance of proactive monetary policy in managing economic fluctuations. As investors await key budgetary announcements, the RBI's continued involvement is likely to play a pivotal role in shaping future market dynamics. This approach reflects a commitment to sustainable economic growth and responsible fiscal management, setting a positive tone for the coming fiscal period.