Indian government bonds experienced their biggest rally in seven months following the Reserve Bank of India's announcement of a substantial liquidity injection worth ₹2.90 trillion ($32.34 billion). The comprehensive intervention has sparked what traders are calling a "Santa Claus rally," with sustained bond price increases expected through the end of the financial year as the central bank's measures address supply concerns and optimize banking system liquidity.

Bond Yield Movement and Market Response

The benchmark 10-year government bond yield demonstrated exceptional movement, closing at 6.54% with a drop of over 9 basis points in the biggest single-session decline in seven months. The yield had climbed to 6.70% on Tuesday to multi-month highs on heavy state debt supply and seasonal tax outflows, but is now expected to soften as RBI purchases absorb supply.

Bond yields and prices move in opposite directions, indicating substantial buying interest in government securities following the RBI's comprehensive liquidity plan.

RBI's Strategic Liquidity Injection Plan

The Reserve Bank of India outlined a detailed liquidity injection strategy designed to absorb government bond supply and ensure optimal banking system liquidity conditions through aggressive open market operations and forex interventions.

According to Venkatakrishnan Srinivas, founder of Rockfort Fincap, the 10-year yield is likely to be in the range of 6.40-6.50% by end-February, assuming RBI maintains surplus liquidity at 1% of net demand and time liabilities.

Market Liquidity Conditions and Corporate Impact

Liquidity conditions tightened over the past two weeks due to RBI's likely intervention in the forex market to strengthen the rupee and advance tax outflows since mid-December. The money market has remained in deficit since mid-December, prompting the central bank's aggressive response.

The sharp rise in yields had forced Power Finance Corp to scrap a ₹6,000 crore bond sale on Tuesday after bids came in at higher-than-expected coupons, highlighting the market stress that prompted RBI's intervention.

Policy Transmission and Market Outlook

Nomura noted in a report that "OMO auctions will contain longer-tenor yields and reduce steepening pressure on the curve." The dollar swap is expected to inject rupee liquidity and lower forex forward premia, which had surged amid tight cash conditions and persistent RBI intervention.

While the RBI measures provide immediate relief, traders remain cautious given looming state development loan supply and fiscal uncertainty ahead of the budget. "The ₹2 lakh crore of buying is notable and will likely cap yields for now, but concerns around supply and fiscal outlook persist," Nomura said, indicating continued market vigilance despite the comprehensive intervention.

The BSE Bankex rejig scheduled for today carries substantial implications for Bank of India as it involves a USD 12 million addition. The timing of this rejig at 3pm today marks a specific moment of market activity for the banking stock.

BSE Bankex Rejig Details

Market Implications

The USD 12.00 million addition in the BSE Bankex rejig represents a significant development for Bank of India's market positioning. Index rejigs typically reflect changes in market capitalization, trading volumes, or other fundamental factors that influence a stock's weightage within the banking sector index.

Banking Sector Context

As part of the BSE Bankex, Bank of India's inclusion with this substantial addition amount demonstrates the stock's relevance within the broader banking sector framework. The rejig process involves systematic evaluation and adjustment of constituent stocks to maintain the index's representativeness of the banking sector performance.

The scheduled 3pm timing for today's BSE Bankex rejig provides market participants with a specific timeframe to monitor the implementation of these changes and their potential impact on Bank of India's trading dynamics.