10-year bond yields fall 6 bps after RBI's open market operation plan

Foreign banks net sell Rs 9,800 crore in one week to book profit after fall in yields

The yield on the benchmark bond softened by 6 basis points (bps) on Tuesday after the Reserve Bank of India (RBI) announced another set of open market operation (OMO) auctions to buy bonds. The central bank plans to purchase government securities worth ₹1.25 trillion. The auction will be conducted in four tranches on May 6, May 9, May 15, and May 19.

 

“After a week of profit booking, the RBI announced the OMO auction, which cheered the market,” said a dealer at a state-owned bank. “The way the RBI is providing liquidity to the market, the bond market is benefitting the most at the moment,” he added.

 

 

The RBI purchased ₹20,000 crore worth of securities via an OMO auction conducted on Tuesday.

 

Last week, foreign banks emerged as the largest sellers in the gilts market, offloading a net ₹9,800 crore, estimates by market participants showed. As a result, the yield on the benchmark 10-year bond rose by 5 bps last week.

 

The selling was primarily driven by profit booking, along with heightened caution due to escalating tensions in Kashmir. The anticipation of the upcoming auction of a new 10-year bond this Friday further contributed to the selling pressure.

 

“Foreign banks were the biggest sellers; they were booking profits. After them, it was private banks,” said a dealer at a primary dealership. “Some selling was also due to the expectation of a new 10-year bond at the auction, so people lightened their positions. Public-sector banks were on the buying side,” he added.

 

The yield spread between the 10-year US Treasury bond and the domestic benchmark 10-year bond narrowed to below 200 bps in April, as domestic demand, driven by expectations of a deeper rate cut, weighed on yields. On the other hand, US Treasury yields climbed amid renewed inflation concerns due to trade tariffs, tempering expectations of near-term rate cuts by the Federal Reserve.

 

The total foreign portfolio investment in Indian government securities designated under the fully accessible route (FAR) stood at ₹2.95 trillion as of Tuesday, down from ₹3 trillion at the end of March, according to data from the Clearing Corporation of India.

 

On Tuesday, the rupee weakened against the dollar due to heightened tension between India and Pakistan, said dealers. However, the rupee’s Asian peers continue to appreciate against the greenback in anticipation of easing the global trade war.

 

The rupee settled at 85.25 per dollar on Tuesday, compared to the previous close of 83.03 per dollar.

 

“There is caution after a statement from Pakistani officials. Nobody wants to carry risks,” said a dealer at a private bank. “Globally, the tariff situation should be clear soon, which is why there is some relief on that front,” he added.

 

The rupee has appreciated by 0.42 per cent against the dollar in the current calendar year so far. In the current month, it has appreciated by 0.26 per cent.