RBI’s QE Offers Little Relief as Underwriters Rescue Bond Sale
Indian two thousand and five hundred rupee banknotes are arranged for a photograph in Mumbai, India (Photographer: Dhiraj Singh/Bloomberg)

RBI’s QE Offers Little Relief as Underwriters Rescue Bond Sale

Primary dealers rescued an Indian government debt auction for the seventh time this year, indicating weak appetite despite the central bank’s pledge to buy as much as 1 trillion rupees of sovereign notes this quarter.

Underwriters bought 109.3 billion rupees ($1.5 billion) of the 110 billion rupees of new 2026 bonds on offer, the Reserve Bank of India said in a statement Friday. There was more demand for longer tenor debt than the RBI planned.

Benchmark bonds ended slightly stronger after briefly erasing the day’s gains following the auction results. The yield on the 10-year note has dropped to 6.02% from 6.12% before the RBI’s explicit assurance of debt purchases.

“While RBI remains supportive of the market, we still believe demand-supply dynamics remain unfavorable,” Standard Chartered Plc analysts including Nagaraj Kulkarni wrote in a note. The bank estimates the RBI would need to buy five trillion rupees of bonds to plug the demand-supply gap.

RBI’s QE Offers Little Relief as Underwriters Rescue Bond Sale

The RBI sold 138.8 billion rupees of new 2035 bonds compared with planned 100 billion rupees, and raised more money via 2050 and 2033 securities.

Indian bond yields surged to their highest in almost a year last month as the government’s plans to sell 12.1 trillion rupees of debt in the fiscal year that started in April and global reflation bets dampened the demand for sovereign notes.

With the RBI unable to cut rates due to persistent inflation pressure, tension between traders and the central bank kept building as auctions were scrapped and market participants pushed for a formal bond-purchase plan.

RBI chief Shaktikanta Das had earlier said the central bank bought 3.1 trillion rupees worth of bonds in the previous fiscal year to March 31, and planned similar or more purchases this year. On Wednesday, the RBI said the new plan was included in its liquidity projections for the year, without giving details on purchases after the first quarter.

Fundamentals don’t justify the scope for a sizable rally in India’s 10-year government bonds considering “external conditions and lingering inflation risks,” Duncan Tan, a rates strategist at DBS Bank Ltd. wrote in a note.

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