Indian government bond yields fell on Thursday as the Reserve Bank of India's latest liquidity measures boosted sentiment, but uncertainty over the benchmark 10-year paper's inclusion in the central bank's debt purchase plan limited the decline.

       The benchmark 10-year bond yield ended at 6.6806 per cent, the lowest level since February 6, compared with its previous close of 6.7087 per cent.

       "A strong move to boost liquidity the latest measures are expected to lift core liquidity to a surplus suggest that the overall policy stance is clearly accommodative, with an eye on facilitating policy transmission," said Radhika Rao, executive director and senior economist at DBS Bank.

       On Wednesday, the RBI said it will infuse over $21 billion of rupee liquidity into the banking system to ease lending conditions and support economic growth.

       The RBI is set to buy bonds worth 500 billion rupees ($5.74 billion) each on March 12 and March 18, followed by a $10 billion three-year dollar/rupee swap on March 24.

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       The measures will infuse around 1.87 trillion rupees into the banking system in March - the last month of the financial year which generally sees liquidity conditions get tighter.

       The announcements are the latest in the central bank's quest to infuse liquidity into the system and keep banking system liquidity in a surplus, analysts said.

       The RBI has already bought bonds worth 1.39 trillion rupees through open market and secondary bond purchases and infused around 1.31 trillion rupees through two FX swap auctions since mid-January.

       It has also infused around 1.83 trillion rupees through early-April maturity repos. The bond purchase announcement has also improved demand for the longer-duration papers, narrowing the gap between the liquid five-year paper and the 10-year part of the yield curve.

       The market is now eyeing the details of next week's bond purchase, and the inclusion of the benchmark bond could spur the next round of price rally.

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