Amid expectations of yet another interest rate cut by the Reserve Bank of India later this week, yield on the 10-year benchmark bond fell below 7% for the first time since November 2017.
The government bond yield ended at 6.99% on Monday, against the previous close of 7.03% on Friday.
The RBI reduced the interest rate twice in its last two policy meetings in February and April, by 25 bps each, to address the sluggish economic growth.
The market is expecting stimulus to boost the economy amid a five-year low GDP growth and 45-year high unemployment rate.
“Growth is likely to remain weak in the next quarter, before improving in 2H2019; the RBI is expected to cut rates by 25 bps at the upcoming June meeting,” said Pranjul Bhandari, chief economist, HSBC India, in a note.
The six-member monetary policy committee of the RBI will announce its decision on interest rate on Thursday.
Expectation of a rate cut for the third consecutive policy meeting of RBI also helped the rupee appreciate 0.6% against the dollar, apart from rally in the equity markets.