Indian sovereign bonds declined as the Reserve Bank of India’s measures to support the bond market fell short of expectations.
The yield on benchmark 10-year note rose four basis points to 6.11 after climbing to 6.15 per cent, its highest since Aug. 28. Governor Shaktikanta Das refrained from announcing a bond purchase calendar to help the market absorb the government’s massive borrowing plan, though he assured that the central bank’s liquidity stance will continue to be accommodative.
RBI’s reluctance to announce concrete steps to support the bond market could exacerbate a selloff triggered by the government’s plan to sell 12 trillion rupees ($164 billion) of bonds in the next fiscal year starting April, which comes after a record 13.9 trillion rupees of issuance this year.
“The RBI not coming out with open-market purchases disappointed market participants given that there were huge expectations,” said Naveen Singh, head of fixed-income trading at ICICI Securities Primary Dealership in Mumbai. The more RBI delays support, higher the yields will move, he said.
The RBI however announced other measures. It extended the easing available under the so-called held-to-maturity norms to March 2023 and allowed retail investors access to the government bond market. A reduction in cash-reserve ratio to 3 per cent which was valid till March 26, will be restored in two phases by May 22, Das said, adding that CRR normalization would open up space for the RBI to inject additional liquidity.
Bond yields stayed anchored in 2020 mainly due to the central bank’s support measures including injection of 2.7 trillion rupees through open-market bond purchases and Operation Twists where it simultaneously bought and sold government bonds.