RBI’s buyback plan drag bond yields lower for fifth consecutive session

07 Dec 2011 Evaluate

Bolstered by the central bank’s announcement for another Rs 10,000 crore worth of bond buyback, Indian bond yields drifted lower for the fifth consecutive session on Monday. The sentiment was also reinforced by the choice of papers at this week's buyback by the central bank.

The central bank has been buying back bonds for the past two weeks to help ease a cash crunch. However, the buybacks have been lower than targeted amount with banks either unwilling to sell at the levels offered by the central bank or because the papers chosen were in the hold-to-maturity books of banks.

On the global front, US treasuries prices slipped on Tuesday though volumes were light in what could be the lull before the storm as investors wait on key events in the euro zone planned for later this week. Meanwhile, Brent crude was steady above $110 on Wednesday, as investors turned cautious ahead of a European summit to deal with the region's debt crisis and the release of key Chinese economic data this week.

The yields on 10-year benchmark 8.79% - 2021 bonds 2021 bonds were trading lower by 4 basis points at 8.54% from its previous close of 8.58% on Monday. Financial markets were closed on Tuesday for a local holiday.

The benchmark five-year interest rate swaps were trading tad down at 7.15% from its previous close of 7.16% on Monday.

The Reserve Bank of India has announced the auction of 182 and 91 day Government of India Treasury Bills for notified amount of Rs 4,000 crore each. The auction will be conducted on December 7, 2011 using 'Multiple Price Auction' method.

The Government of India have announced the sale (re-issue) of four dated securities for Rs 13,000 crore on December 9, 2011 , which include (i) “7.99 percent Government Stock 2017” for a notified amount of Rs 2,000 crore (nominal) through price based auction, (ii) “Floating Rate Bonds 2020” for a notified amount of Rs 2,000 crore (nominal) through price based auction (iii) “9.15 percent Government Stock 2024” for a notified amount of Rs 6,000 crore (nominal) through price based auction and (iv) “New 30 year Government Stock 2041” for a notified amount of Rs 3,000 crore (nominal) through yield based auction.

Moreover, consistent with the stance of monetary policy and based on the current assessment of prevailing and evolving liquidity conditions, the Reserve Bank of India (RBI) has decided to conduct Open Market Operations (OMO) by purchasing government securities for an aggregate amount of Rs 10,000 crore on December 8, 2011.

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