RBI steps into bond market with Operation Twist to cool down yields

Under the mechanism, the apex bank buys long-term bonds and sells short-term bonds. This cools down long-term yields, raises short-term yields, but keeps liquidity neutral

Yields fell on Tuesday after the Reserve Bank of India (RBI) said it would buy and simultaneously sell Rs 20,000 crore of bonds from the market in two equal tranches.

Such buy-sell transactions are commonly called Operation Twist. Under this mechanism, the central bank buys long term bonds and sell short-term bonds. This cools down the long term yields, raises the short-term yields, but keeps the liquidity neutral.

The operations will be conducted on August 27 and September 3. In the first operation, bonds maturing between 2024 and 2032 will be purchased, while bonds maturing between October and November this