India Bond Yields Up As No OMO Plan Announced; Auction Cutoff Key

Friday,   15-Jan-2021   01:30 PM (IST)

Indian federal government bond yields stayed higher in the afternoon session, as the central bank did not announce any debt purchase plan for next week. Traders also awaited the outcome of a debt sale and a reverse repo auction by the Reserve Bank of India. The benchmark 5.77% 2030 bond changed hands at 98.72 rupees, yielding 5.95%, at 1:00 p.m. in Mumbai, against 98.87 rupees, yielding 5.93% yesterday. Earlier today, the note fell to 98.64 rupees, with the yield rising to 5.96%, its highest since Dec. 24. The Indian rupee was unchanged at 73.04. The central bank assured to help clear the record government borrowing slated for this fiscal and has been conducting special OMOs for the last three consecutive weeks to support market sentiment. It has so far bought 1.37 trillion rupees via special OMOs and 400 billion rupees via outright OMOs this fiscal. In order to support the pandemic-hit economy, New Delhi hiked its market borrowing to 12 trillion rupees via bond issuances. It is borrowing another 1.10 trillion rupees on behalf of financially-constrained states. The federal government is raising 220 billion rupees via bonds today. The central bank supported the economy by infusing massive system liquidity through reduction in cash reserve ratio, among other measures. However, it now plans to restore ‘normal’ liquidity in a phased manner and is conducting a 14-day variable reverse repo of up to two trillion rupees today. Traders expect a cutoff yield in the 3.45%-3.50% band.  The recent liquidity move was aimed at anchoring money market rates with the reverse repo, and not for draining out liquidity surplus, senior central bank officials told money market participants at a meeting earlier this week. India’s banking system liquidity surplus has been hovering around 5.50 trillion rupees over the last few days and had hit a record high of 6.65 trillion rupees earlier this month. The benchmark Brent crude oil contract was trading 1.6% lower at $55.60 per barrel. India imports nearly 80% of its crude oil requirement.