India Bond Market Stable Amid Supply Stress: How Liquidity Steps Propped Up Returns

India’s bond market took a hit after the global index deferral, but returns stayed steady as liquidity kept flowing and supply stress was cushioned. 

India’s bond market has had enough reasons to wobble in January 2026: a surprise global bond index deferral, heavy state borrowing, and global rate jitters. Yet, the sell-off stayed controlled, and fixed income returns did not crack the way they often do during supply-heavy phases. 

Mint reported on 18 January 2026 that the market’s resilience came from how liquidity was handled, not just from rate expectations. 

What Set Off The Yield Pressure?

The immediate pressure point was the deferral of India’s inclusion in Bloomberg Index Services’ flagship bond index, which pushed the benchmark 10-year yield up by about 10 bps in a short span, as per Economic Times reporting on 17 January 2026. 

At the same time, traders were already watching a packed borrowing calendar, especially from states, and that added a risk premium to longer tenors. Reuters on 19 January 2026 flagged that state issuance this fiscal year is close to the Centre’s, which is keeping the curve steep. 

Before the table below, the key point is simple: yields did rise, but the numbers show why the market did not tip into a sharp, illiquid slide.
 

After the table, the pressure looked real, but it was not allowed to become a one-way trade.

Liquidity Actions That Kept Returns Stable

The strongest support came from outright bond buying. Economic Times on 17 January 2026 reported the RBI had already bought ₹2.54 trillion of bonds since December via open market and secondary market purchases, with another ₹500 billion lined up. Reuters also noted the calendar effect, with a ₹500 billion purchase on 13 January 2026, followed by a similar buy on 22 January 2026. 

On top of bond buys, forex swaps pumped durable rupee liquidity. Reuters on 13 January 2026 said a $10 billion 3-year dollar-rupee swap drew bids of about $29.94 billion, nearly 3 times the offer, with a cut-off premium of ₹7.28. This was not just a technical move. It helped improve transmission when long-end yields were refusing to fall meaningfully, even after rate cuts, as Reuters pointed out in the same report. 

Mint on 3 January 2026 also noted that variable rate repo operations and open market purchases were being used actively to keep short-term rates anchored and funding conditions comfortable. 

What Changed Since December: A Quick Timeline?

The shift began in early December 2025 when the central bank announced a durable liquidity plan combining bond buying and forex swaps. Business Standard on 5 December 2025 explained the package as ₹1 trillion of OMO purchases plus a $5 billion USD-INR swap. 

By late December, Business Standard reported on 24 December 2025 that the central bank had announced ₹2 trillion of OMO purchases and a 3-year $10 billion swap, triggering a sharp rally in gilt yields. It also reported that durable liquidity infused in December was about ₹1.45 trillion through OMOs and forex buy-sell swaps. 

In January, the operations became more visible. Economic Times reported on 13 January 2026 that an OMO purchase auction injected ₹50,000 crore into the system. 

What Stakeholders Are Saying?

Mint’s 18 January 2026 report quoted Chirag Doshi of LGT Wealth India on how liquidity tools helped returns stay stable even as sentiment swung. Reuters on 19 January 2026 quoted market participants saying state supply is keeping the curve steep and limiting how much long-end yields can soften. 

Conclusion

Bond returns stayed resilient because liquidity support was consistent and large-ticket.
The next risk is supply from states, which could keep spreads sticky even if rates ease.