Bonds rally as RBI announces plan to purchase more G-secs

Bloomberg Mumbai | Updated on December 27, 2019 Published on December 27, 2019

The RBI will buy ₹10,000 crore of 2029 bonds through an auction on December 30

Benchmark sovereign bonds gained in India after the Reserve Bank of India (RBI) said it will buy long-end debt for a second week, stepping up the pace of its unconventional policy to lower borrowing costs.

The 10-year yield slid 7 basis points to 6.51 per cent, taking the weekly decline to nine basis points.

Also read: RBI plans to purchase, sell G-secs worth ₹10,000 cr each on Monday

The RBI is embracing a Federal Reserve-style Operation Twist, where it buys long-end debt while selling short-end bonds, after five rate cuts this year failed to lift economic growth. It will conduct a second operation on Monday, following on its first such move earlier this week.

The unprecedented move has put a stop to the relentless steepening in India’s yield curve, as investors dumped long-end debt on concern the government will add to record bond sales.

Also read: All you wanted to know about Operation Twist

The RBI will buy ₹10,000 crore ($1.4 billion) of 2029 bonds through an auction on December 30, it said on Thursday. It plans to sell a total Rs10,000 crore of debt maturing in 2020.

The operation will flatten the yield curve further, reducing the term premium that had widened amid market concerns over India’s fiscal slippage, according to a Scotiabank note.

Published on December 27, 2019
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