India bond traders urge RBI to buy debt, ease auction rules, sources say

India’s bond traders have urged the central bank to step in to buy government debt and tweak the auction rules to ease pressure on the market, three sources familiar with the discussions said on Wednesday.

The demands were made at a meeting between Reserve Bank of India officials and primary dealers on Tuesday, the sources said, declining to be identified as they are not authorised to speak to the media.

The RBI did not respond to a request for comment on Wednesday, a public holiday in India.

“Open market bond purchases (OMO) were a unilateral demand from across participants, as everyone is on the same page when it comes to supply concerns,” one of the traders said.

While central and state governments continue to borrow heavily, demand from long term investors like insurers and pension funds has been thin this year.

As a result, bond yields have remained elevated despite a 100 basis points of rate cuts since the start of 2025, while the RBI’s recent forex interventions have tightened liquidity further, roiling markets.

Traders see room for the central bank to buy bonds more than 1.5 trillion rupees ($17.1 billion) worth of bonds, Reuters reported on Tuesday.

However, the RBI offered no signals at the meeting about potential bond purchases, the traders said.

They also proposed that the RBI switch to a uniform pricing method at primary bond auctions to lower borrowing costs.

The central bank has adopted multiple price bidding for auctions since April 2024.

Under this method, buyers are allotted bonds at the price they bid, while uniform pricing allots all investor bonds at the cutoff level, limiting potential losses for individual bond houses and boosting confidence in bidding.

“For the time being this could calm down nerves and give some comfort to investors that their investment will not move into immediate mark-to-market loss,” another trader said.

($1 = 88.6950 Indian rupees)

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