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Operation Twist returns to send India’s bond yields plunging
The yield on the 10-year bond dropped 20 basis points, the most since March 27, to 6.02%, after the Reserve Bank of India said it would buy long-term debt while selling bills.
The benchmark sovereign bond in India surged after the central bank said it would redeploy a debt operation akin to the Federal Reserve’s Operation Twist.
The yield on the 10-year bond dropped 20 basis points, the most since March 27, to 6.02%, after the Reserve Bank of India said it would buy long-term debt while selling bills.
“The RBI is trying to attack different parts of the curve -- from intervening in treasury bills, buying longer bonds, to offering cheaper credit to shadow banks,” said Manish Wadhawan, founder at Serenity Macro Partners in Mumbai. “The whole aim is to keep the system afloat at a time of lockdown and market dislocation.”
The RBI is returning to a tool it last used in January as the nation’s debt market show signs of strain from the government’s record borrowings. With the country in in a coranavirus-lockdown, foreign funds have been fleeing, making traders increasingly worried about a deluge of issuances.
The central bank will buy 100 billion rupees ($1.3 billion) of bonds maturing between 2026 and 2030 on April 27, and sell the same amount of bills. While the amount is relatively small for the nation’s 60 trillion rupee market, the move suggests the RBI is heeding calls from investors.
Unlike its peers in the region such as Bank Indonesia, the RBI has so far refrained from large-scale purchases of bonds. As a result, yields on the 10-year bond climbed 24 basis points from the end of March to a high of 6.45% on April 16.
“The central bank seems to be addressing the distortion in the yield curve, which would have weighed on the long-term financing needs of the economy,” said Harish Agarwal, a trader with FirstRand Bank Ltd. in Mumbai. “This move is aimed at helping the monetary transmission.”
