While the central bank will be selling bonds maturing between 15 October 2020 and 29 April 2021, it will be buying bonds maturing between May 2027 and 5 December 2033, the central bank said in a statement.
The RBI said it is doing so keeping in mind the evolving liquidity situations in banks. Such bond buy and sell operations, however, are a way of softening long-term yields that help the government borrow cheap. Besides, they also give the central bank enough long-term bonds to support its liquidity operations. The central bank has to offer bonds to banks keeping their surplus liquidity with the central bank and for that it must have enough bonds. Once the bonds mature in RBI holding, the central bank may fall short of such bonds. The buy and sell OMO operations protect the central bank from such an option.
This is also called ‘Operation Twist’ in market parlance. In the recent past, the central bank has done such operations twist a number of times, but in this financial year, the central bank is doing such Operation Twist for the second time, after April 28.
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The 10-year bond yield closed at 5.90 per cent on Monday.