India Bond Yields Tad Lower As Traders Await Special OMO Result

Thursday,   26-Nov-2020   01:19 PM (IST)

Indian federal government bond yields stayed marginally lower in the afternoon session, as traders awaited the outcome of the central bank’s so-called special open market operation. The benchmark 5.77% 2030 bond changed hands at 99.18 rupees, yielding 5.88% at 1:00 p.m. in Mumbai, against 99.14 rupees, yielding 5.89% yesterday. The Indian rupee was at 73.79 to the dollar against 73.91 yesterday. The Reserve Bank of India aims to purchase bonds worth 100 billion rupees maturing in 2024, 2027 and 2030 and simultaneously sell 7.80% 2021 bond and Treasury Bills maturing in May, worth the same amount today. It had conducted OMOs of the same quantum in each of the last two weeks. The RBI has already bought bonds worth 871.32 billion rupees through special OMOs and 400 billion rupees through outright OMOs in this financial year. The central bank has given many assurances about helping to absorb the record government borrowing of 13.10 trillion rupees lined up for this fiscal year. Market participants expect the central bank to conduct outright bond buybacks to ensure that the government’s borrowing costs do not rise substantially. In recent weeks, the RBI has been going slow on its open market bond purchases, apparently wary of releasing more cash into the banking system, traders said. The central bank had earlier announced that it would double the quantum of OMO purchases, but has conducted only two such auctions worth 200 billion rupees each in October, before again resorting to special OMOs. New Delhi will raise at least 280 billion rupees, including a new 10-year paper worth 80 billion rupees, via a debt sale tomorrow. The new note will replace the existing benchmark note in the coming sessions. Market participants expect the cutoff yield for the same in the 5.80%-5.84% band. The note was bid at 5.89% in the ‘when issued’ segment yesterday. India still has fiscal and monetary space to roll out targeted stimulus to perk up demand and the federal budget for the next fiscal year may announce more reform measures to bolster recovery in the Covid-19 ravaged economy, the principal economic advisor to the finance ministry, Sanjeev Sanyal, said. India’s growth data for the July-September quarter will also be released tomorrow. A Reuters poll predicts the economy to contract 8.8% in the second quarter, after posting its worst contraction ever of 23.9% in April-June, the period which saw the most stringent lockdown across the nation. Meanwhile, crude oil prices edged higher, extending the rally for the fifth straight session on the hopes that a promising coronavirus vaccine will aid in reviving fuel demand. The benchmark Brent crude oil contract was 0.1% up at $48.65 per barrel, hovering near its highest level in almost nine months and extending yesterday’s 1.6% rise. India imports nearly 85% of its crude oil requirements.