Indian bond yields stable after record state debt sale, RBI purchase

Indian government bond yields ended little changed on Tuesday after a record state debt auction was easily absorbed by the market, while a smaller-than-expected debt purchase by the central bank lifted sentiment. 

The benchmark 10-year bond yield ended at 6.6370 per cent, compared with its previous close of 6.6291 per cent. 

Indian states raised Rs 722.55 billion ($8.43 billion) through a sale of bonds, the biggest amount ever to be borrowed via a single auction. 

"Both the Reserve Bank of India's bond purchase and state debt auction went very well," said Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank. "At the open market operation (OMO), the RBI bought a lesser amount, which they took at a higher price - close to the market price, which the market took positively." 

 

The state debt auction saw strong demand even though the quantum was large, and cut-off yields were lower than expected, he added. 

Long-term investors, including a large provident fund, some pension funds, and a few insurance companies, drove demand

for the debt, according to traders. 

Meanwhile, the RBI bought bonds worth Rs 445.41 billion against a target of Rs 500 billion . 

"The cutoff at OMO was taken as a positive surprise because banks were not desperate to cut their positions, which was seen in all the previous OMOs," a trader at a private bank said. 

The RBI has net bought bonds worth 2.83 trillion rupees since mid-January and infused another 4 trillion rupees of liquidity into the banking system through FX swaps and early-April maturity repos. 

Still, the benchmark bond yield has stayed close to three-year lows as underlying sentiment remains positive, with the central bank widely expected to cut rates one more time this year in April. 

The RBI lowered its key interest rate for the first time in nearly five years in February.  (Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)