Reserve Bank of India focuses on the 10-year bonds in G-SAP again

The RBI mopped up a record Rs 26,779 cr of the 10-year bond in pre-announced secondary market operation

The Reserve Bank of India (RBI) mopped up a record Rs 26,779 crore of the 10-year bond in its pre-announced secondary market operation, which, adding to its existing stock, makes the central bank the single biggest holder of the benchmark.
 
The RBI conducted the final tranche of its G-Sec acquisition programme (G-SAP) for the first quarter, in which it bought Rs 30,000 crore of central government bonds and Rs 10,000 crore of state development loans.
 
With this, the RBI concluded the first quarter G-SAP and for the next quarter, it has plans to buy Rs 1.2 trillion of bonds from the market.

 

“I have never seen RBI supporting the government borrowing programme so strongly, but these are exceptional times, which requires an exceptional response,” said Joydeep Sen, fixed income consultant at Phillip Capital.
 
The auction results showed that of the Rs 30,000 crore of government bond purchases planned, the central bank fully concentrated on the 10-year benchmark. The cut-off was 5.99 per cent. It also bought Rs 1,914 crore of a paper maturing in 2028 and Rs 5,882 crore of the paper maturing in 2035. Three other papers listed were left untouched.
 
In previous G-SAPs and through open market operations, the RBI had already purchased Rs 54,500 crore of the 10-year paper. Therefore, through announced operations itself, the RBI has purchased Rs 81,279 crore of the benchmark bond.

 
Bond dealers say the central bank has further accumulated the paper through its other means of unannounced secondary market operations. The government has raised Rs 1.19 trillion through this particular paper. This is generally the threshold limit for a bond before a new one replaces it. Considering that most of the bonds are now with the RBI, bond investors say there is no reason that another benchmark should be announced.
 
“Sometime the RBI will have to bring the new 10-year security, now that we are mid-way through the calendar year. Probably, the reason they are delaying it is that they are managing this particular paper,” Sen said.

 
Since the RBI now owns most of the 10-year benchmark, the yields on the paper have remained firmly anchored around 6 per cent. But that shouldn’t be the indication of a rate signal, since the price discovery on this paper is limited, say bond dealers.
 
Generally, the 10-year is the most traded paper in the market, but it is now the third most traded as liquidity is limited.
 
In a separate announcement, the RBI said it will be converting short-term securities maturing between 2022 and 2024 to securities maturing between 2033 and 2035.