Banks Sold Bonds, Missed Yield Rally Gains

In the last quarter, the yield on the benchmark 10-year government bond remained near 7 percent for most of the period. It later softened in June following government and Reserve Bank of India (RBI) initiatives aimed at attracting foreign capital into the domestic debt market. Typically, a lower yield environment supports treasury gains through bond appreciation. However, most banks could not fully capitalize on this trend. Banks actively sold government securities throughout the quarter to finance strong credit growth. This proactive liquidation of their investment book before yields significantly declined limited the potential gains from holding these assets through the yield rally. The treasury head at a state-owned bank noted this strategy impacted their ability to benefit from the market movement.