Finance
By: Shree1news, 10 APR 2021
The 10-year bond yield fell below 6 per cent in intra-day trade on Friday after the Reserve Bank of India (RBI) dedicated to buying at least Rs 1 trillion of bonds from the secondary market.
Within the morning trade, the yield dropped to 5.97 per cent, but it surely climbed up to close at 6.02 per cent as soon as it was found that the central bank had refused to sell a new 5-year benchmark paper at the fee demanded by the market. Instead, the RBI forced the primary dealers, or underwrites of the auction, to buy virtually the entire stock of the new 5-year benchmark paper at 5.63 per cent.
Within the first auction of the fiscal year, the RBI raised Rs 37,853 crore using greenshoe options instead of the planned Rs 32,000 crore.
Still, Friday’s closing was below the previous close of 6.03 per cent. Yields on the 10-year bond have fallen more than 18 basis points since the start of the financial year. This is contrary to what the market was largely expecting in the face of a large borrowing programme by the Centre.
In its own version of quantitative easing (QE), the central bank introduced a G-Sec Acquisition Programme (G-SAP) in the policy, committing how much it would buy every quarter. The bond market expects the RBI to run a G-SAP programme of Rs 3.5-4 trillion in the full fiscal year.
The bond yields rallied in the morning, responding to the choice of securities in the first G-SAP, stated Debendra Dash, senior vice president at AU SFB. The central bank stated it could be buying the benchmark 10-year bonds in the G-SAP on April 15.
However, the first auction of the financial year began with an enormous devolvement. The RBI didn’t sell Rs 11,000 crore of 5-year bonds at the rate the market was asking for. Rather, primary dealers had to buy nearly the entire stock.
This soured the mood by the end of the market hours, and the yields climbed up at the end, according to Sprint.
However, the mood in the bond market stays upbeat with the central bank’s dedication to buy bonds.
“There has been a favourable turn of events at the start of this fiscal wherein global bond yields have started to cool off from its recent peak and on the domestic side the RBI has continued with its accommodative policy and focus on growth,” stated Anand Bagri, head of home markets at RBL Bank.
“Markets love certainty and with the central banker committing to buy bonds to the tune of Rs 1 trillion it has sparked quite a sharp rally in the bond prices,” Bagri stated.
Bond dealers expect the surplus liquidity to continue in the system and a prolonged pause on rates at least by this calendar year.
Bagri expects the 10-year bond yield to fall to as much as 5.90 per cent and trade in a new range of 5.90- 6.10 per cent in the coming days, making the borrowing cost for Rs 12.05 trillion of bonds cheap for the government.
Source:A-N
