Mumbai: Yields on government securities fell sharply to an intra-day low of 6.14% on Friday after Reserve Bank of India governor D. Subbarao said the central bank will “manage” the state’s borrowing programme “in the least disruptive manner”.

The yields have been on the rise in the past few weeks on oversupply of government papers. The government raised its borrowing programme for the current fiscal to Rs2.05 trillion from Rs1.35 trillion, to bridge the rising fiscal deficit.

The yield on the benchmark 10-year bond closed at 6.22% on Friday, down its Thursday level of 6.53%, which was a two-month high level.

“We will see that the market is stable. We will see that there is no volatility. We will manage the government’s borrowing programme in the most efficient fashion,” Subbarao told reporters on the sidelines of a function in Mumbai.

With the latest auction of two bonds, the government has completed Rs1.97 trillion worth of borrowing and will raise another Rs8,000 crore in the last week of February. The bond market expects the government to again borrow between Rs20,000 crore and Rs30,000 crore to fund its widening fiscal deficit.

The bond market was concerned that this extra borrowing would strain the market and yields of bonds will rise, making them unattractive. Yields and prices of bonds move in opposite directions.

According to bond dealers, RBI can prevent further rise in bond yields in many ways. One way of keeping the bond market alive is capping the amount commercial banks can park at RBI’s reverse repo window. Banks parked about Rs70,000 crore with RBI on Thursday. They earn 4% interest on this.

“If the amount is capped, banks will have to hit the market and buy government bonds, thus pulling the yields down,” said N.S. Venkatesh, managing director of IDBI Gilts Ltd, a firm that trades in bonds.

Saikat Chatterjee of Reuters contributed to this story.