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India Bond Yields Tad Lower On Value Buying; MPC Minutes Help

Tuesday,   23-Feb-2021   11:00 AM (IST)

Indian government bond yields were trading marginally lower in early session, as investors stepped up purchases after the recent spike in yields. Minutes of the rate-setting panel, which highlighted the Reserve Bank of India’s commitment to provide liquidity and focus on growth, also aided appetite. The benchmark 5.85% bond maturing in 2030 changed hands at 97.60 rupees, yielding 6.18% at 10:45 a.m. in Mumbai against 97.44 rupees yesterday, yielding 6.20%. The yield on the paper rose to its highest since Aug. 26 yesterday, and has jumped 24 basis points in last six sessions. The Indian rupee was at 72.38 to dollar against 72.51 yesterday. The central bank’s decision to hike banks’ cash reserve ratio will open up space for various market operations to inject additional liquidity through tools including bond purchases by the central bank, RBI Governor Shaktikanta Das said in the minutes of the Monetary Policy Committee’s latest meeting. The central bank had announced it will hike banks’ CRR by 50 basis points from Mar. 27 and another 50 basis points from May 22 to 4.00%, as part of its phased move to suck out excess cash that is sloshing in the financial system. Das also reiterated that the country’s growth momentum needs to further strengthen for a sustained revival of the economy and for the output levels to quickly return to the pre-Covid trajectory. Bond market sentiment turned bearish after the RBI delayed outright purchases in the debt market, further exacerbating the demand-supply gap in the debt market. Participants had hoped that the RBI will resort to debt purchases after the devolvement at last week’s auction. Without the RBI’s support, long-term yields have soared. Concerns of oversupply have resurfaced after New Delhi announced that it will borrow a record 12.80 trillion rupees this fiscal, followed by 12.05 trillion rupees in the next year. It will also borrow an additional 1.10 trillion rupees to on-lend to financially constrained states this year. The RBI has bought federal government bonds worth 301.69 billion rupees from the secondary market in the week ending Feb. 12 and 200 billion rupees worth of notes via an outright OMO earlier in the month. It will conduct a special OMO worth 100 billion rupees on Thursday. Meanwhile, Indian states plan to raise 239.06 billion rupees via bonds maturing in five years to 20 years today. The quantum is marginally higher than 217.11 billion rupees according to the borrowings schedule. New Delhi will raise at least 240 billion rupees via sale of bonds on Friday and this includes 110 billion rupees of 6.22% 2035 note, the bidding for which will be conducted using uniform price method. Three of the four auctions in this month have seen devolvement of notes on primary dealers due to weak demand. The benchmark Brent crude oil contract was trading 1.8% higher at $66.45 per barrel, hovering close to its highest level since January 2020. It rose 3.7% yesterday, the biggest single-session rise in seven weeks. India imports nearly 85% of its crude oil requirement.