Mumbai: The yield of the 10-year government bonds on Monday fell nearly seven basis points to hit a near 11-week low after the Reserve Bank of India announced open market operation purchases in November.
At closing, the 10-year gilt yield stood at 7.811% -- a level last seen on 10 August, from its Friday’s close of 7.876%. Bond yields and prices move in opposite directions. Meanwhile, the rupee ended at 73.44 a dollar, up 0.03% from its Friday’s close of 73.47. The currency opened at 73.30 a dollar.
“Indian bonds continue to get a hand from RBI’s front-loaded liquidity support, which will help soften yields further, compensating for a drain due to FX intervention and festive driven spurt in currency in circulation. Even as domestic fiscal worries linger, November’s borrowings will be modest (net issuance minus OMOs). In this environment, credit spreads are also likely to ease providing a window for borrowings to return," said Radhika Rao, economist at DBS Bank.
“Global factors are conducive as equities sell-off softens US yields, oil prices are off highs and rupee stabilises, allowing Indian 10Y government yields to stay below 8% this week," Rao added.
On Friday, RBI said that Based on an assessment of the durable liquidity needs going forward, RBI has decided to conduct purchase of government securities under Open Market Operations (OMOs) for an aggregate amount of ₹ 40,000 crore in the month of November 2018. For October, RBI bought government bonds worth around ₹ 36,000 crore via OMOs.
“The auction dates and the Government securities to be purchased in the respective auctions would be communicated in due course. The OMO amount stated above is indicative and RBI retains the flexibility to change it, depending on the evolving liquidity and market conditions", RBI report added.
Vivek Rajpal, strategist at Nomura, expects OMO buybacks will become frequent and regular in response to liquidity deficit conditions. Currency in circulation outflows and FX intervention are two factors which is putting pressure and interbank liquidity and RBI’s OMO buyback is in response to that, added Rajpal. He expects ₹ 1.5 trillion of OMO buybacks in the second half of the fiscal year 2019.
Benchmark Sensex Index rose 2.15% to 34067.40 points. Year to date it rose 0.03%
So far this year, the rupee has declined 12.5%, while foreign investors have sold $5.06 billion and $8.56 billion in the equity and debt markets, respectively.