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Home >News >India >Bond yields fall sharply: 'RBI comes in as Santa for bond markets'

In a slew of measures for easing of financing conditions and the provision of adequate liquidity, RBI has cheered the bond market investors. RBI's commitment to conduct adequate OMOs, first time OMOs of state development loans and On Tap TLTROs were amongst the major announcements to bring cheer to the bond markets. The 10-year bond yield fell by 8 bps to 5.93% -- a level last seen on September 4, from its previous close of 6.015%. Bond yield and prices move in opposite directions. Experts believe the whole policy was dedicated for the bond markets.

"All in all it was a positive policy for the bond markets. We can see that in bond markets reaction. Yields are down already. RBI came in as a Santa for the bond markets through the monetary policy today," says Pankaj Pathak, Fund Manager- Fixed Income, Quantum Mutual Fund.

In anticipation of positive reaction from the market participants, Governor Shaktikanta Das today announced to conduct an open market operations (OMO) purchase worth 20,000 crore next week. "RBI will maintain comfortable liquidity conditions and will conduct market operations in the form of outright and special open market operations," said RBI Governor.

Also, for the first time ever, RBI will conduct OMOs of state loans. "In order to impart liquidity to SDLs and thereby facilitate efficient pricing, it has been decided to conduct open market operations (OMOs) in SDLs as a special case during the current financial year," said RBI.

Debt market experts believe these measures will bring down the bond yields even further to close to 5% in near future.

"As an endeavor to lower the yields in bond markets, the central bank announced to expand weekly OMO purchases, include State Development Loans as part of its purchases and TLTRO of Rs1 trillion. We believe, over time, Gsec 10-year yield will drop closer to 5%," says Amar Ambani, Senior President and Head of Research – Institutional Equities, Yes Securities.

RBI announced to introduce on-tap targeted long-term repo operations (TLTRO) for banks to borrow up to 1 trillion from the window and invest in corporate bonds and other debt instruments of certain sectors.

“We propose to announce an on-tap TLTRO. The focus of liquidity measures by RBI will now include revival of activities in specific sectors that have both backward and forward linkages and multiplier effect on growth," said Shaktikanta Das, governor, RBI, while announcing the policy statement.

Das said the on-tap TLTROs will have tenors of up to three years at a floating rate linked to the policy repo rate and the scheme will be available up to 31 March, 2021.

Bond market experts believe at a time when market participants were struggling with concerns on rising inflation and large govt borrowings, such an assuring policy statement would help bring stability, confidence and renewed enthusiasm in debt markets.

"RBI has put on display its full range of tools and the commitment to deploy it without hesitation and it should leave no doubt that the recent green shoots will get unprecedented care and nurturing to grow into full blossom. Market now has one less factor to worry on outlook , given the strong intent and demonstrated action by RBI in current environment," says Mahendra Jajoo, CIO- Fixed Income, Mirae Asset Investment Managers.

Those looking to invest in debt mutual funds may go for slightly higher duration funds if their risk appetite allows as the chances of mark to market losses are very less from here.

"We will see bond yields remaining trapped at the current levels or go down from here. There are very less chances of mark to market losses, so the investors who have the required risk appetite can look at slightly higher duration funds or dynamic bond funds," says Pankaj Pathak.

This is the first meeting of the new MPC which was formed after the appointment of three three eminent economists – Jayant Verma, Ashima Goyal and Shashanka Bhide.

The meeting of the six-member MPC, earlier slated for September 29 to October 1, was rescheduled as the appointment of independent members was delayed. The MPC must have a quorum of four.

Experts expect RBI to maintain status quo on the benchmark lending rates in view of the inflation. In the last monetary policy review on August 6, the RBI chose inflation as its priority.

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