India: Yields hit 2-year high as RBI sells in secondary market

  • India’s benchmark yield jumped to the highest in two years as demand for bonds at recent auctions dwindled amid concern over the central bank’s consistent sales of the nation’s debt in the secondary market.
  • The 10-year bond yield rose five basis points to 6.59%, highest since Jan 20. That’s after underwriters stepped in to buy nearly INR44bn of INR60bn of the 2026 debt for sale on 7 Jan 22. The last time underwriters rescued an auction was at end-Jul 21.
  • Market sentiment has soured after the Reserve Bank of India began gradually ramping up its liquidity withdrawal via variable reverse repo operations while also becoming a net seller in the secondary market by offloading over INR150bn of bonds since mid-Nov 21.
  • The central bank halted bond purchases in its Oct 21 policy meeting after buying INR2.2tr of debt via its purchase program in the Apr 21 to Sep 21 period.
  • The central bank’s reduced support for the bond market is exacerbating stress on sovereign bonds resulting from the rise in Treasury yields. The risk of additional government spending amid the latest wave of Covid infections could further dampen the demand for Indian bonds.
  • India sold 30% of the INR240bn issuance on 31 Dec 21 as the central bank chose not to give in to investor demand for higher yields. RBI Governor Shaktikanta Das has repeatedly said he is comfortable with an orderly evolution of the yield curve but that the central bank will step in to prevent sharp spikes.

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