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MUMBAI: Yields on 10-year government bonds fell for the third straight day on Friday hit a two-month low.

At 10.25am, the 10-year bond yield was at 5.97%, a level last seen on 11 February, and down 5 basis points from the previous close of 6.03%.

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On Wednesday, the Reserve Bank of India (RBI), while detailing the first bi-monthly monetary policy of the current fiscal, had announced a Rs1 trillion bond-buying plan to keep a lid on long-term interest rates amid a massive government borrowing programme.

As part of the government security acquisition programme (G-SAP 1.0), RBI will buy 1 trillion worth of bonds from the secondary market in three months to 30 June, with the first purchase of 25,000 crore on 15 April.

Bond yields have declined nearly 22 basis points from Wednesday's high of 6.19% after the central bank's bond purchase announcement.

"We believe the introduction of an official RBI bond purchase calendar via GSAP is positive for bonds," brokerage firm Nomura Research said in a note.

Analysts expect net open market operations along with G-SAP purchase to total Rs4.5-5 trillion in FY22.

Emkay Research said a more vocal and defined G-SAP calendar for Q1FY22 will lead to a much lower sovereign risk premia ahead, amid an elevated borrowing calendar.

The re-instating of longer-term variable rate reverse repos (VRRR) was followed by an assuaging statement and this should be read as liquidity smoothening and not liquidity tightening, it adds.

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