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 Rs 19,400 crore ($2.66 billion) of debt, equal to about 60% of the Rs 31,000 crore 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.
“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 Rs 10,890 crore of the benchmark note of the Rs 12,000 crore 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 Rs 2,710 crore of 3.96% 2022 bonds, against the Rs 3,000 crore of sales target, and purchased Rs 5,820 crore of 5.15% 2025 notes, almost half of Rs 12,000 crore 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 Rs 20,000 crore 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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