New Delhi: On June 5, 2025, the Reserve Bank of India (RBI) pumped about Rs 23,856 crore into the banking system by buying back five government bonds.
This was done to keep enough money flowing in the financial system and maintain market stability. Such steps are part of RBIs regular tools like open market operations and currency swap auctions.
Why Bond Yields Are Moving
Recently, government bond prices fell and yields went up due to several reasons:
Expectations that RBI may cut rates soon (though not very likely now).
Global worries such as tariffs and geopolitical tensions.
Narrowing gap between U.S. and Indian bond yields.
Some profit-taking by investors.
Short vs. Long Duration Bonds
At present, shorter-duration bonds look safer than longer-duration bonds. Heres why:
If interest rates are cut, short-term bonds respond more quickly.
If rates stay the same (or go up), long-duration bond prices fall more, so the risk is higher.
With short-term bonds, you may earn slightly less, but your capital is better protected and you stay flexible.
What Investors Should Do
If RBI doesnt cut rates further, long-duration bondholders may suffer losses on the market value of their bonds.
In such an uncertain environment, its safer to focus on shorter-duration investments. They may give lower returns, but they protect you from large price swings.
Staying defensive for now is a smarter choice until interest rate and government policy trends become clearer.
A Note for Retail Investors
For people who are still in the wealth-building stage (saving and reinvesting, not depending on regular income), government bonds may not be the best option. The interest earned gets added to taxable income each year. This can reduce overall returns and may even push you into a higher tax bracket.