RBI DRIVES DOWN 10-YR BOND YIELDS TO 6 PER CENT LEVEL

The Reserve Bank of India (RBI) on Wednesday drove down the 10-year bond yields to the 6 per cent mark — something it has strived to maintain so the government can borrow cheap. It had earlier sparred with the bond market on the issue but put it to rest on Wednesday by giving a strong rate signal at the open market operation (OMO) auction. Of the ~20,000 crore the central bank wanted to buy from the market through four securities, the RBI bought ~14,654 crore in the 10-year segment alone.

The Reserve Bank of India (RBI) on Wednesday drove down the 10-year bond yields to the 6 per cent mark — something it has strived to maintain so the government can borrow cheap. It had earlier sparred with the bond market on the issue but put it to rest on Wednesday by giving a strong rate signal at the open market operation (OMO) auction.

Of the ~20,000 crore the central bank wanted to buy from the market through four securities, the RBI bought ~14,654 crore in the 10-year segment alone. It completely left out a bond maturing in 2028, while buying ~2,040 crore and ~3,306 crore in papers maturing in 2024 and 2034, respectively.

The market offered bonds worth ~89,234 crore for the ~20,000-crore OMO. On Thursday, the RBI will auction ~22,000 crore of bonds in a special auction, and another ~26,000 crore on Friday as part of the regular auction.

The cut-off of the 10-year bond was 6.0034 per cent, a result of the RBI buying the bonds at a rate higher than the prevailing market. The central bank bought the 10-year bonds at 50 paise above the prevailing rate, and brought down the yields from 6.08 per cent to the 6 per cent mark. The 10-year bond yields closed at 6.0096 per cent.

“Generally, OMOS purchases are equally distributed across securities. By doing disproportionate buying, the RBI is giving a strong yield signal that it wants to maintain the 10-year at 6 per cent,” said Debendra Dash, head of asset-liability management at AU SFB.

According to bond market participants, the central bank may have intervened in the secondary market too by buying bonds anonymously from there. The bond market participants, for sure, have got the message, say experts.

“The RBI’S action today caught everyone by surprise. This is as loud a yield management signal as there can be,” said a bond dealer.