Global Bond Selloff Hits Sixth Sovereign Auction in India
A worker counts money at a market in Mumbai, India. (Photographer: Adam Ferguson/Bloomberg News)

Global Bond Selloff Hits Sixth Sovereign Auction in India

India’s bond underwriters stepped in to save an auction for the sixth time this year, the most since the 2013 taper tantrum, amid rising global yields.

Primary dealers bought 194 billion rupees ($2.66 billion) of debt, equal to about 60% of the 310 billion rupees the government offered at the weekly auction, the Reserve Bank of India said in a statement Friday. They purchased a bulk of the benchmark 10-year bond. Sovereign notes declined.

The central bank, which is also the government’s debt manager, has struggled to sell sovereign bonds this year as a larger-than-expected borrowing program and the global selloff prompted traders to demand higher yields. To calm the markets, the RBI has raised the amount of bonds it plans to buy at the next week’s Operation Twist.

Global Bond Selloff Hits Sixth Sovereign Auction in India

“Caught between domestic cues and a global squeeze in rates, a repricing of the yield curve (higher) lies ahead,” Radhika Rao, chief India economist at DBS Bank in Singapore, wrote in a note. That’s “in sync with the evolving dynamics of an improved growth outlook, lower liquidity surplus and above-target inflation.”

Rising global yields have hurt new bond sales from Indonesia to Japan and Germany this week. Federal Reserve Chair Jerome Powell refrained from pushing back against the recent rise in U.S. yields, further hurting the demand for sovereign debt.

Benchmark Indian bonds have sold off in recent weeks, coinciding with the selloff in U.S. Treasuries. The yield on the benchmark 10-year bonds rose two basis points to 6.23% on Friday. It rose 33 basis points in February, the biggest advance in more almost three years.

Primary dealers bought 108.9 billion rupees of the benchmark note of the 120 billion rupees government had offered to sell. The RBI sold 11.04 billion rupees of 2030 bonds to other investors at 6.2225% cutoff yield. Underwriters purchased 27.1 billion rupees of 3.96% 2022 bonds, against the 30 billion rupees of sales target, and purchased 58.2 billion rupees of 5.15% 2025 notes, almost half of 120 billion rupees on offer.

While the RBI is widely expected to keep policy rates unchanged in coming months, it has used unconventional measures to keep yields anchored around 6% for most of last year.

The RBI has expanded its bond purchases for next week to 200 billion rupees via its Operation Twist, while it will sell 150 billion rupees of shorter bonds. The central bank has included the benchmark 10-year bond as well as the liquid 5.15% 2025 bond in its purchase plan.

To calm the market jitters, RBI Governor Shaktikanta Das last week said that the monetary authority will buy at least 3 trillion rupees of bonds in the next fiscal year starting April 1, similar to what it bought in the current year.

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