RBI Buys 100 Billion Rupees of Bonds

Monday 23rd December 2019 16:19 EST
 

India’s central bank bought 100 billion rupees ($1.4 billion) of the benchmark 10-year debt while selling 68.25 billion rupees of 2020 bonds as it sought to cheapen longer-term borrowing. The Reserve Bank of India set a cutoff of 6.5462% for the 6.45% 2029 bonds, according to a statement. Yields slid after the auction results were announced, extending last week’s declines.

The concept is similar to Operation Twist used by the Fed in 2011-2012 in an effort to cheapen long-term borrowing and spur bank lending. The Fed then swapped short-term Treasury securities for longer-term government debt, which reduced the gap between two- and 10-year yields.

“The impact on bond market would depend on the strength of RBI’s follow up after the initial auction, and any implied signal about where RBI wants markets to settle,” ICICI Securities Primary Dealership Ltd. said in a note before the auction results. The central bank had announced on 19 December that it will conduct simultaneous sale and purchase of ₹10,000 crore of government securities of varying tenor on 23 December.


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