Mumbai: Sovereign bonds in India rallied after the central bank said it will purchase debt to meet the cash needs of the banking system.

The Reserve Bank of India (RBI) will buy Rs10,000 crore ($1.5 billion) of securities across the yield curve from 2020 to 2033 maturities on 17 May, it said late Friday. The purchases come after the shortest bond on sale on Friday was rescued by underwriters for a third straight auction.

“This announcement should be seen as a positive surprise by the market as it comes earlier than expected and especially amid liquidity surplus conditions," Vivek Rajpal and Prashant Pande, rate strategists at Nomura Holdings Inc. wrote in a note.

The yield on the benchmark 7.17% debt maturing in 2028 dropped 13 basis points to 7.60% in early Mumbai trading.

Surplus cash held by banks dropped to Rs38,000 crore as of 3 May from a Rs1.1-trillion high in April, according to the Bloomberg Economics India Banking Liquidity Index. Bloomberg

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