RBI Signals Lower Yields by Buying Bulk of Ten-Year Debt in OMO

(Bloomberg) -- India’s central bank picked up the bulk of the bonds in the 10-year segment at a higher than expected price in an open market purchase auction on Wednesday, highlighting its focus on keeping the benchmark yields anchored.

The Reserve Bank of India bought 146.5 billion rupees ($2 billion) of the most traded 5.77% 2030 bond at 6.0034% yield, way below the 6.06% estimated by traders in a Bloomberg poll. It also bought the 6.18% 2024 bond and 6.19% 2034 bond, at yields in line with estimates.

The central bank’s purchase at the higher than expected prices highlights its focus on keeping the benchmark yield anchored below 6%. The yield on the most traded 5.77% bond fell six basis points to 6.06% at 3:30 pm in Mumbai trading.

“The RBI is using 10-year point on the yield curve as an anchor and is trying to influence market expectation through disproportionate buying” at that point, according to Pankaj Pathak, fixed income fund manager at Quantum Asset Management.

The central bank will seek to buy more than 3 trillion rupees of sovereign bonds in the next fiscal year to keep benchmark yields anchored around 6%, Bloomberg News reported Monday, citing a person with knowledge of the matter.

“Every action of the RBI is consistent with maintaining conducive interest rate scenario for the broader economy,”said Soumyajit Niyogi, associate director at India Ratings & Research Ltd.

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