India Bond Ylds Set To Ease In Sep On RBI Steps, 2H Borrowing Key

Wednesday,   30-Sep-2020   01:18 PM (IST)

Indian government bond yields are set to end lower this month, aided by the central bank’s special open market operations as well as devolvement at auctions. However, traders are focused on the government's second-half borrowing details that are likely to be released later today. The benchmark 5.77% bond maturing in 2030 changed hands at 98.21 rupees, yielding 6.01%, at 1:00 p.m. in Mumbai, against 98.03 rupees and 6.04% yesterday. The yield is down seven basis points in September after jumping 24 basis points in August. The Indian rupee was at 73.73 to the dollar against 73.85 yesterday. The Reserve Bank of India purchased bonds worth 271.32 billion rupees in September through special open market purchases, and is due to buy 100 billion rupees of notes through a similar auction tomorrow. The central bank also temporarily increased the held-to-maturity limit to 22% of net demand and time liabilities for bond purchases between Sep. 1 and Mar. 31. Securities held under held-to-maturity need not be marked to market, shielding banks from adverse yield movements. Apart from these steps, the RBI nearly fully devolved the benchmark notes at weekly auctions, thus hinting at its discomfort over rising yields. The central bank also did not accept any offer in what would have been its maiden open market bond purchase for the year, as the notes were offered at higher-than-prevailing yields. Still, the major focus remains on the borrowing calendar for October-March. The federal government raised its annual borrowing target to a record 12 trillion rupees in May and has borrowed 7.68 trillion rupees via sale of bonds in April-September. Market participants fear additional borrowing as Asia’s third-largest economy contracted 23.9% from a year earlier in April-June, a period that saw stringent lockdowns to curb the spread of the coronavirus pandemic. India is the world's worst impacted nation after the U.S. with the reported number of infected cases now rising to 6.22 million, including 97,497 fatalities. Market participants await clarity on the central bank’s management of bond supply through open market purchases. Indian Monetary Policy Committee’s meeting, scheduled for Sep. 29 to Oct. 1, has been rescheduled and the new dates have not been announced. The government is yet to name three new external members who will join the rate-setting panel. Crude oil prices fell on concerns over demand due to rising coronavirus cases across the globe. The benchmark Brent crude oil contract was 0.8% lower at $40.70 per barrel, hovering near two-week lows and extending yesterday’s over-3% fall. India imports 85% of its crude oil requirements.