New Delhi: Indian government bond yields remained unchanged on Thursday. After an initial fall in yields, the recent decline was controlled by profit booking. As of 10 am, the 10-year bond yield stood at 6.6830%, against the previous close of 6.6845%. Earlier during the day, the yields had fallen to 6.6760%, the lowest level since February 2022.

What is bond yield?

Bond yield is the profit that an investor makes by investing in bonds. To put it simply, bond yield is the return that an investor gets on his capital investment. There is an inverse relationship between bond yield and bond price, i.e. when the bond price increases, the yield decreases and when the bond price decreases, the yield increases.

How is bond yield calculated?

Bond yields are calculated by dividing the coupon payments by the current market price of the bond, which is called the current yield. For example, if a bond has a face value of $1,000 and pays $100 in annual interest, its coupon rate would be 10% ($100 ÷ $1,000). If the price of a bond rises, the current yield will decrease because that bond becomes less attractive to new investors. Similarly, if interest rates rise, the price of an older bond decreases to give investors the same yield as a newer bond. When market interest rates rise, the price of fixed-rate bonds falls, and when interest rates fall, the price of bonds rises.

"State-owned banks are selling, while foreign banks are buying. So there is not much interest in buying and selling bonds, but there is a possibility of further decline during the day," said one trader. PSU banks have sold bonds worth about Rs 350 billion (about $4.13 billion) in the last four trading sessions.

Last Friday, India's economic growth data showed slow growth, with the country's GDP growing at 5.4% in the July-September quarter, the lowest in the last seven quarters. This has led to a decline in bond yields and investors are hopeful that the Reserve Bank of India (RBI) will soon ease monetary policy.

Monetary policy will be announced on Friday

The Reserve Bank's monetary policy is announced on Friday and before this, the difference between the 10-year bond yield and the central bank's key interest rate has reached a 7-year low. Along with this, the Overnight Index Swap (OIS) rates have also come down by about 20 basis points, which are expectations of a reduction in interest rates. There is an estimate in the market that the Reserve Bank may cut the Cash Reserve Ratio (CRR) for banks by 50 basis points, which will bring liquidity of more than Rs 1.1 lakh crore in the banking system.