No, Negative Yields Have Not Come To India
An order in a short-term government bond placed at a negative yield was likely a fat finger error.
An apparent trade in short-term Indian government bonds at a negative yield on Friday, which left debt markets baffled, was a fat finger error and the trade was not concluded, a person familiar with the matter said on the condition of anonymity.
Negative yields, while now common in developed markets, are eyebrow-raising in India where the central bank’s benchmark rate is at 4%.
On Friday, the 6.17% bond maturing in 2021 was offered at a negative yield of around 1.5%, according to traders who saw the quote on the Clearing Corporation of India’s Negotiated Dealing System – Order Matching, or NDS-OM platform, Bloomberg reported. This left traders concerned that if negative rates begin to show up in the Clearcorp Repo Order Matching System, or CROMS platform, it could make it costlier to short Indian bonds, the report said.
According to the person quoted above, a bank placed an order at a price significantly higher than the prevailing market price. In all probability, this was on account of a fat finger error, the person said. Since the yield shown on the system is derived from the price and the security matures in less than four months, it showed up as -1.5%.
The order was not, however, traded, the person said. The yield on the security closed at 3.57% on Friday.
An RBI spokesperson did not comment.
The Indian central bank and the bond markets have been locked in a tussle for the past two months. While the central bank has assured markets of comfortable liquidity conditions and a smooth passage of the government borrowing programme, yields have moved higher. The 10-year benchmark bond yield closed at 6.19% on Friday.
In an article in its March bulletin, the Reserve Bank of India once again cautioned the markets. “There is no way the economy can withstand higher interest rates in its current state. It is recovering but certainly not out of the woods yet,” the article said, referring to the global context of rising bond yields. “There is much sense in what the Reserve Bank is doing in striving to ensure an orderly evolution of the yield curve. But it takes two to tango and forestall a tandav,” the article said.