INDIA BONDS-India bond prices see mini rally tracking Treasuries; focus remains on RBI policy

By Dharamraj Dhutia

MUMBAI, April 3 (Reuters) - Indian government bond prices continued their recent rally in early deals on Thursday, although of a lower magnitude compared to the previous session, tracking U.S. Treasury yields' decline after President Donald Trump announced new reciprocal tariffs.

Bond market investors also await April's first debt purchase from the Reserve Bank of India later in the day.

The benchmark 10-year bond yield IN067934G=CC was at 6.4750% as of 9:45 a.m. IST, compared with the previous close of 6.4806%.

Earlier in the day, the 10-year bond yield fell to 6.4553%, the lowest since January 3, 2022.

Yields move inversely to bond prices.

"Bonds reacted to the Treasury moves, but the major focus remains on local central bank and bets of a rate cut and dovish commentary," trader with a state-run bank said.

The 10-year bond yield posted its biggest one-day drop since May 3, 2023 on Wednesday, after the RBI said it will buy bonds worth 800 billion rupees ($9.34 billion) in April.

The central bank will buy the bonds in four equal tranches, with the first one due later in the day. The RBI has also injected durable liquidity worth over 5 trillion rupees into the banking system between January and March.

On Wednesday, Trump slapped 26% tariffs on imports from India, effective April 9, as part of his plan to place duties on all U.S. imports.

U.S. yields dropped after the move, with the 10-year yield US10YT=RR declining to around 4.04%, its lowest level in nearly six months, as growth concerns pushed up rate easing bets in world's largest economy.

Interest rate futures are pricing in slightly more than 75 basis points of Federal Reserve rate cuts in 2025.

The RBI policy decision is due next Wednesday, with many expecting yet another rate cut, while some are also anticipating a change in stance along with some positive commentary on liquidity.

($1 = 85.6560 Indian rupees)