Short bonds rally after RBI’s surprise move to add cash

Short-term sovereign bonds in India pushed higher after the central bank surprised traders by announcing longer-term repo operations to ensure better transmission of previous rate cuts to customers.

The Reserve Bank of India said it will provide up to ₹1 trillion ($14 billion) via one- and three-year long-term repos at the repurchase rate starting February 15. The yield on the 7.32% 2024 yield slid 17 basis points, while that on 6.18% 2024 bond fell 15 basis points.

The move is part of steps the central bank announced to boost credit growth, including removing a mandatory requirement for banks to set aside cash of 4% for every new loan extended to retail automobiles, residential housing and small businesses.

“What it means is one can fix borrowing costs without the fear of rate hikes,” said Naveen Singh, head of fixed-income trading at ICICI Securities Primary Dealership in Mumbai. The announcement is “a big positive for short-end bonds,” he said.

Longer-end bonds rallied less on fears that the liquidity management tool may lead to fewer open-market bond purchases. The benchmark 10-year bond was down 3 basis points to 6.48%.

The Reserve Bank of India kept its repurchase rate steady at 5.15% as expected by all 37 economists in a Bloomberg poll. It also retained its accommodative monetary stance.

This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.