The Reserve Bank of India has decided to conduct simultaneous purchase and sale of government securities (G-Secs) under open market operation (OMO) for ₹10,000 crore each on August 27 and September 3 in a bid to tame G-Sec yields, which jumped almost 24 basis points in the last six trading sessions.

This announcement seems to have had the intended effect, with the yield on the benchmark 10-year G-Sec immediately softening about 5 basis points. One basis point is equal to one-hundredth of a percentage point.

Under the OMO to be conducted on August 27, the Central bank will purchase four G-Secs — those maturing in 2024, carrying a coupon rate of 6.18 per cent (6.18 per cent G-Sec 2024); 8.24 per cent G-Sec 2027; 5.79 per cent G-Sec 2030; and 7.95 per cent G-Sec 2032 — for ₹10,000 crore.

Simultaneously, the RBI will be selling four 182-day Treasury Bills, maturing on October 15, October 22, October 29 and November 6, 2020, for ₹10,000 crore.

The spike in G-Sec yields came in the backdrop of a rise in retail inflation and the RBI holding the repo rate in the last policy review.

Bond market expert K Boovendran said the OMO auction will help cool the G-Sec yields, which spiked in the last few trading sessions. The move to sell 182-day Treasury Bills will ensure that the liquidity that will be released due to purchase of G-Secs by the RBI is neutralised, he added.

The securities for the second tranche auction (purchase and sale of G-Secs under OMO for ₹10,000 crore each) on September 3 will be announced separately, the Central bank said in a statement.

 

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