Indian Bonds Jump Most in Year After RBI Cancels OMO Debt Sale
RBI won’t proceed with a 100-billion-rupee ($1.54 billion) auction under its open-market operation.
(Bloomberg) -- Sovereign bonds rose the most in a year in India after the central bank scrapped a debt sale due later this week that was designed to reduce banking liquidity.
The Reserve Bank of India won’t proceed with a 100-billion-rupee ($1.54 billion) auction under its open-market operations on Thursday after a review of liquidity conditions, it said after the market closed Friday. The central bank has auctioned 900 billion rupees of the securities since the start of July.
India’s government bonds have slumped since August due to a potential end to monetary easing, concern about rising supply and possible fiscal slippage. They jumped at the start of trading on Friday when Moody’s Investors Services upgraded the nation’s sovereign rating, only to reverse direction and end the day almost flat.
“With supply pressures easing off a bit as state bond supply is lower than expected this week, and the OMO sales getting canceled, bond markets have witnessed a smart bounce back,” said Sandeep Bagla, associate director at Trust Capital Services Pvt. in Mumbai. “Domestic surplus liquidity has been reducing steadily over the past few weeks and is expected to come down more in the next three to four months.”
Surplus cash at banks dropped to 583.5 billion rupees as of Friday, according to the Bloomberg Intelligence India Banking Liquidity Index. That’s down from more than 5 trillion rupees in March after bank deposits surged following Prime Minister Narendra Modi’s unexpected decision to scrap 500- and 1,000-rupee banknotes in November 2016.
RBI Signal
The yield on the benchmark 6.79 percent bond due in 2027 dropped 16 basis points to 6.89 percent on Monday, the biggest fall in a year. It climbed to 7.10 percent on Nov. 16, the highest since September 2016.
Traders said the decline was also due to the OMO cancellation being perceived as a signal from the central bank.
“The market is taking it as a signal from the RBI that, quite possibly they were not very comfortable with the absolute levels of the yield and the pace at which the yields were going up,” said Vijay Sharma, executive vice president for fixed income at PNG Gilts Ltd. in New Delhi. The RBI may not do further sales under its open market operations, he said.
The rupee slid 0.1 percent to 65.09 to a dollar, after gaining 0.5 percent Friday after Moody’s upgrade.
--With assistance from Kartik Goyal
To contact the reporter on this story: Subhadip Sircar in Mumbai at ssircar3@bloomberg.net.
To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Nicholas Reynolds, Ravil Shirodkar
©2017 Bloomberg L.P.
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