The 10-year bond yield fell to 6.39 per cent from Monday's close of 6.48 per cent. Bond yield and prices move in opposite directions. The benchmark 10-year bond yield was at 6.44 per cent, down 4 bps on the day after having earlier dropped to a low of 6.35 per cent, its lowest since August 7.
A market dealer said the lower risk of additional borrowing by the government will fuel further rally in G-secs with yield on 10-year GoI bond trending downwards.
During the day on Tuesday, India bonds touched at three-week high, rupee gained too after RBI payout to government was announced on Monday. The surplus transfer, analysts said, had assured investors and markets that there was unlikely to be any fiscal slippage.
Indian bonds surged up to their highest in three weeks while the rupee rose after the Reserve Bank of India (RBI) approved the transfer of a much higher-than-expected dividend to the government, soothing concerns of fiscal slippage and chances of more borrowings to meet the target as the economy is facing slowdown and there is lower tax revenue on GST.
Analysts said the surplus amount may be either used to provide fiscal stimulus to a sagging economy, reduce off-balance sheet borrowings or meet the expected shortfall in revenue collections.
"The fiscal math looks a lot more achievable following this transfer," said Emkay Research in a note to its investors.
Most of the analysts said the transfer of surplus from the RBI should help offset the expected shortfalls in various tax revenues in FY2020 and aid the government in meeting its fiscal deficit target. As a result, G-sec yields are likely to ease in the immediate term.
On Monday, bond yields fell nearly 9 basis points after the measures announced by finance minister Nirmala Sitharaman eased fears that the government may borrow more to fund its stimulus plan.
( With inputs from IANS )