Mumbai: Bond yields fell on Tuesday after investors interpreted the Reserve Bank of India’s partial rejection of bids at Monday’s money market operation as a signal it was uncomfortable with higher yields.
Sentiment was also helped after the RBI said it had moved Rs280 billion ($5.7 billion) from its intervention bonds to the government, a move that would ease the pressure on market borrowings.
The 10-year benchmark bond yield ended at 6.30%, off the day’s low of 6.22% but below its previous closing of 6.37%.
“The rejection of bids at Monday’s reverse repo auction is the reason for ample liquidity in the system, driving demand for debt,” said a trader at state-run Allahabad Bank.
Volumes were heavy Rs134.45 billion on the central bank’s trading platform with the 2019 bond being most traded.
At its second daily money market auctions on Monday, the central bank accepted only Rs718.96 billion worth of bids out of 776.50 billion received. It had last rejected bids at its daily money market auctions in August 2007.
Banks parked about Rs1.19 trillion in the central bank’s morning reverse repo auction on Tuesday, indicating the extent of surplus cash.
Some dealers said the reason for the partial rejection of bids could be technical as the central bank may not have had enough bonds to give as collateral to banks.
There were also speculation the central bank would conduct more aggressive buyback auctions to increase its debt holdings.
After market hours, the central bank said it would buy back Rs60 billion of bonds on Thursday through a uniform price-based method.
The RBI is due to sell Rs90 billion of treasury bills on Wednesday and Rs120 billion of bonds on Friday. It sold Rs25 billion of state loans on Monday.