Indian government bond yields dropped sharply in morning trade after the
RBI announced the special open market operations worth 200 billion
rupees ($2.69 billion) to rein in the sharp rise in yields in recent
sessions.
The RBI simultaneously buys longer-end bonds from the market while
selling shorter-dated treasury bills of the same quantum, similar to the
Federal Reserve-style ‘Operation Twist’.To get more news about
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The government has been a massive borrower from the domestic bond
market to fund its coronavirus pandemic-related spending amid a fall in
revenues due to weak demand in the economy.
The RBI said it would buy 200 billion rupees of bonds while also
selling an equivalent amount of treasury bills through two tranches in
two special open market operations on Aug. 27 and Sept. 3.
Bond yields have risen in eight out of the last nine trading sessions,
rising 22 bps in just the last two sessions to Monday. On Tuesday, the
benchmark 10-year bond yield dropped as much as 9 bps after the special
OMO announcement.
“They (RBI) came because all other auctions could have failed,” said
Murthy Nagarajan, head of fixed income at Tata Asset Management.
“There is a disconnect. RBI intervention was expected when 10-year was
at 5.90%-6.0%, they did not come in, which led to this problem. RBI
will need to do two more ‘Operation Twist’ for the market to settle
down,” he added.
Bond market sentiment had turned bearish after the RBI kept rates on
hold on August 6, with future rate cut bets further dampened after the
hawkish minutes of the meeting released last week.
Traders expect the 10-year bond yield to move in a 6.05% to 6.30% range during the week.
The partially convertible rupee was trading at 74.38 per dollar compared with its close of 74.31 on Monday.
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