Mumbai: The 10-year government bond yield fell over 8 basis points to hit near seven-month low after Reserve Bank of India announced additional Rs40,000 crore worth of open market operation (OMO) purchases in December.

The 10-year bond yield closed at 7.643%—a level last seen on 8 May, from its previous close of 7.732%. Bond yields and prices move in opposite directions.

A recent drop in crude oil prices also eased fiscal slippage and higher inflation also added positive sentiments among the investors. Brent crude has corrected 30% from its 2018 high of $86.27 per barrel seen on 3 October. It is also down 8.75% in October.

“We see two main factors that have driven the rally in Indian fixed income markets over the last couple of months: a moderation of monetary tightening expectations, which we believe is a function of lower oil prices and a dovish RBI; and better bond supply dynamics, which is a function of the RBI’s OMO buybacks. We believe these reduced expectations of monetary policy tightening are more relevant to swaps, while bond-supply dynamics are more important to bonds", said Nomura Reserach in a note to its investors

The last lot of GSec for November under OMO worth Rs10,000 crore will be bought by RBI on 29 November. Since 1 April till date, RBI has bought over Rs1,280 billion worth of OMO.

Meanwhile, the rupee ended at 70.62 a dollar, up 0.24% from its Tuesday’s close of 70.79. The currency opened at 70.81 a dollar.

Benchmark Sensex rose 0.57% or 203.81 points to 35,716.95 points. Year to date, it has rose 4.28%.

So far this year, the rupee has declined 9.77%, while foreign investors have sold $5.30 billion and $7.58 billion in the equity and debt markets, respectively.

Traders will remain cautious ahead of the gross domestic product data for September quarter and state election results. GDP for the

Traders awaiting speech of federal Reserve Chair Jerome Powell for further clues on how many more times the central bank is likely to raise interest rates. Traders are also cautious ahead of meeting between Presidents Trump and Xi in Argentina for further cues on trade war.

Bloomberg contributed to this story

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