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India Bond Yields Fall As Debt Sale Demand May Rise, OMO Bets Help

Tuesday,   23-Feb-2021   01:16 PM (IST)

Indian federal government bond yields fell further in the afternoon session, amid continued value buying and possibilities of more open market purchases by the central bank. Traders also expect higher demand at weekly debt auction this week after the Reserve Bank of India said bidding for 6.22% 2035 note will be conducted using uniform price method. However, this solution is short-term and may not improve overall outlook, they said. The benchmark 5.85% bond maturing in 2030 changed hands at 97.70 rupees, yielding 6.17% at 1:00 p.m. in Mumbai, against 97.44 rupees yesterday, yielding 6.20%. The yield had jumped 24 basis points in the last six sessions through yesterday. The Indian rupee was at 72.34 to the dollar against 72.51 yesterday. New Delhi is set to raise at least 240 billion rupees via sale of bonds on Friday and the auction includes the 6.22% 2035 paper, the bidding for which will be conducted using a uniform price method. Three of the four auctions have been devolved on primary dealers this month due to weak demand, including the previous auction of this paper. 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, Reserve Bank of India 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 around 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 output levels to quickly return to the pre-Covid trajectory. New Delhi hiked its market borrowing to a record high of 12.80 trillion rupees in order to support the economy battered by the coronavirus pandemic. The market is now relying on the central bank to correct the demand-supply mismatch. The RBI will conduct a special OMO on Thursday, under which it will simultaneously buy and sell federal bonds worth up to 100 billion rupees. Indian states are selling bonds worth 239.06 billion rupees, marginally higher than the scheduled 217.11 billion rupees. The benchmark Brent crude oil contract was trading 1.4% higher at $66.15 per barrel, hovering close to its highest level since January 2020. India imports nearly 85% of its crude oil requirement.