Bond yields tread water; RBI’s buyback announcement offsets its official’s hawkish comments

20 Jun 2012 Evaluate

Bond prices came under pressure following RBI’s official hawkish comments. Defending the Reserve Bank of India’s (RBI) status quo on key interest rates in its mid-quarter monetary policy review, Governor D Subbarao explained that the central bank chose to keep its focus on reining in the inflationary pressure on the economy rather than stimulating economic momentum since inflation at 7.55% in May was above tolerance levels. However, the gains of the yields were counterbalanced on account of RBI’s buyback announcement.

On the global front, US Treasury debt prices firmed slightly in Asia on Wednesday as investors awaited the conclusion of the US Federal Reserve's latest policy meeting, where Operation Twist' stimulus programme is expected to be extended, under which the central bank buys longer-term securities funded by the sale of short-term ones, with the aim of curbing long-term borrowing costs. Meanwhile, Brent crude continued to trade near 17-month low level, hit in the previous session as worries over Spain's high borrowing costs lingered ahead of the outcome of the US Federal Reserve's policy meeting.

Back home, the yields on 10-year benchmark 8.79% - 2021 were hardly trading unchanged at 8.40% from its previous close of 8.39% on Tuesday.

The Government of India has announced the sale of four dated securities for Rs 15,000 crore on June 22, 2012, which includes (i) “8.19 percent Government Stock 2020” for a notified amount of Rs 4,000 crore (nominal) through price based auction; (ii) “9.15 percent Government Stock 2024” for a notified amount of Rs 7,000 crore (nominal) through price based auction; (iii) “8.28 percent Government Stock 2027” for a notified amount of Rs 2,000 crore (nominal) through price based auction; and (iv) “8.83 percent Government Stock 2041” for a notified amount of Rs 2,000 crore (nominal) through price based auction.

Meanwhile, consistent with the stance of monetary policy and based on the current assessment of prevailing and evolving liquidity conditions, the Reserve Bank has decided to conduct Open Market Operations by purchasing government securities for an aggregate amount of Rs 12,000 crore on June 22, 2012.

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