RBI buys and sells bonds worth Rs 10,000 crore in 'Operation Twist'

Bid and offer pattern shows a healthy market response

The Reserve Bank of India (RBI) on Monday conducted its ‘Operation Twist’ of Rs 10,000 crore, in which it simultaneously bought and sold bonds from the secondary market.

The market response was healthy enough, as the bid and offer pattern showed.

Market participants offered long-term bonds worth Rs 64,747 crore for the Rs 10,000 crore that the central bank planned to buy. The RBI bought bonds maturing between 2026 and 2030 through this facility. The cut-off yield was slightly higher. For example, the cut-off for 7.26 per cent 2029 bond as 6.41 per cent, against its market closure of 6.38 per cent. This means the RBI bought the bonds at a slight discount than the prevailing market price.

Similarly, the RBI received bids of Rs 50,260 crore for bonds worth Rs 10,000 crore that it planned to sell. The bonds were actually treasury bills and cash management bills that mature between June 2020 to April 2021, the auction results showed.

Though the RBI did not give a reason for such an operation, it is generally believed that the apex bank is replenishing its short-term stock with longer tenure bonds in order to carry on with its liquidity operations seamlessly, say market experts.