India: Bonds climb as RBI turns to yield curve control

  • India’s central bank will resume its Federal Reserve-style Operation Twist after weak demand at two successive auctions and inflation concerns drove up yields. Sovereign bonds climbed.
  • The Reserve Bank of India will purchase INR100bn of bonds and sell an equivalent amount of shorter debt on 27 Aug 20 and 3 Sep 20, respectively, it said in a statement. The last such operation was held on 2 Jul 20.
  • Indian government bonds have been under pressure after the RBI left rates unchanged at its Aug 20 meeting and refrained from announcing measures to support a market facing a record INR12tr of debt supply this FY21.
  • The latest minutes showed that the central bank’s rate-setting panel had turned less dovish with higher inflation.
  • Market strains became more evident after a sale of benchmark 10-year debt had to be rescued by underwriters on 14 Aug 20. The 21 Aug 20 auction of longer bonds saw cutoff yields that were higher than expected, leaving traders wondering whether the authority was signaling that yields may head higher.
  • The RBI on 25 Aug 20 said it would buy bonds maturing in 2024, 2027, 2030, 2032 while selling 182-day treasury bills on 27 Aug 20.

External Link :