Bond yields surge after first tranche of G-SAP purchase
Bond dealers said that the higher-than-expected cut-off yield sent out a signal that the central bank is not worried about higher yields
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Yields of 10-year government bonds surged 12 basis points (bps) to 6.127% on Thursday after the Reserve Bank of India (RBI) bought ₹25,000 crore of securities from the secondary market, in the first tranche of its Government Securities Acquisition Plan (G-SAP 1.0), at yields higher than the market expected.
Yields of 10-year government bonds surged 12 basis points (bps) to 6.127% on Thursday after the Reserve Bank of India (RBI) bought ₹25,000 crore of securities from the secondary market, in the first tranche of its Government Securities Acquisition Plan (G-SAP 1.0), at yields higher than the market expected.
The cut-off yield on 10-year bonds was fixed at 6.0317% against 6% estimated in a Bloomberg survey.
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The cut-off yield on 10-year bonds was fixed at 6.0317% against 6% estimated in a Bloomberg survey.
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Bond dealers said that the higher-than-expected cut-off yield sent out a signal that the central bank is not worried about higher yields.
“The market was expecting the benchmark yield to come at 5.99% or 6.01%. However, RBI bought it at 6.03%. If RBI had bought it at lower yield, then it would have sent out a signal that RBI wants yields to be kept lower," said the treasury head of a public sector bank. “If they had not done this auction today, then the 10-year benchmark yield would have closed at 6.03-6.04%," he said.
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Following Thursday’s auction, the bond market now expects that RBI will be forced to sell the 10-year paper in Friday’s auction at a higher yield. This could result in the devolvement of the auction, leaving the primary dealers to underwrite it, according to dealers. Another reason that the market was caught off guard is that the central bank bought only ₹2,501 crore of G-Secs maturing in 2035, while it bought ₹7,020 crore of 2027 maturity and ₹7,511 crore of 2030 maturity.
“The market was negatively surprised that RBI bought less of the duration bond, as the trend has been otherwise opposite in regular open market operations (OMOs) and Operation Twists," said Naveen Singh, head of fixed income trading, ICICI Securities Primary Dealership.
In the April monetary policy, RBI had announced G-SAP 1.0, wherein the central bank will purchase government bonds worth ₹1 trillion from the secondary market in the first quarter of this fiscal. With this announcement, RBI satisfied a long-standing demand of the bond market of an OMO calendar. So far, RBI had been announcing standalone and special OMOs to bring down yields, refusing to divulge details of a calendar in advance.
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gopika.g@livemint.com
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