RBI's buyback, switch of g-sec in issuances calendar not seen disrupting market

Central bank also planning to issue 40-year govt bonds to cater to demand from long term investors

The Reserve Bank of India plan to include buybacks and switches as a part of the regular calendar of issuances of government securities is not expected to disrupt the bond market.

The central bank said in its annual report, issued last week, that these would be included as a part of the regular calendar of issuance from the second half of the current financial year.

RBI also plans to issue 40-year government bonds, to cater to long-term investors like insurance companies and pension funds.

“I do not think the buybacks and switches will have much of an impact if these come as a part of the regular calendar of issuances. If the switches are modest, it will not have much of an impact but if there are large quantities, then yields might rise,” said S Prabhu, head of fixed income at IDBI Federal Life Insurance.

In the issuance calendar of marketable dated securities, issued in March, the government was to borrow Rs 3.6 lakh crore in April-September. Its gross market borrowing in the current financial year is Rs 6 lakh crore, while the net market borrowing is pegged at Rs 4.56 lakh crore. The borrowing calendar for the second half of the financial year will be announced this month. The Street believes there will be decent demand for the 40-year bond. “The demand for this will be more for matching the liabilities of insurance companies.

It is not going to be unlimited demand on an ongoing basis. The first round of auction will see good demand for this paper. Liquidity will also be an issue in these bonds because insurance companies might buy and and hold it,” said Badrish Kulhalli, fund manager (fixed income) at HDFC Life.

The central bank has been auctioning long-term paper of 20 years and above every week for Rs 3,000-4,000 crore.