RBI likely raised treasury bill purchases in attempt to control the yield curve
Premium- The Treasury-bill purchases suggest that the Reserve Bank of India is preparing to conduct wider Operation Twists
India’s central bank likely purchased Treasury bills for a second successive week, a move aimed at augmenting its toolkit for the yield curve control.
The so-called “Others" category, which includes the central bank, bought bills worth Rs169.7 billion ($2.3 billion), Clearing Corporation of India data showed late Wednesday. State banks sold Treasury bills worth Rs106.6 billion, while primary dealers offloaded Rs58.3 billion of bills, CCIL data showed.
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Traders speculated the RBI likely asked state banks and primary dealers to buy 182-day bills at the weekly auction and later bought them in the secondary market at higher prices. The "Others" category also includes insurance and pension funds, but a large purchase is typically associated with the central bank intervention. The six-month bill was scooped up in a similar fashion last week.
The Treasury-bill purchases suggest that the Reserve Bank of India is preparing to conduct wider Operation Twists, where they sell shorter-dated paper and buy longer bonds in efforts to keep yields under check in case the government expand borrowings to fight the deadly onslaught of pandemic that threatens to cripple the economy.
There is a possibility of higher bond sales in the coming weeks and if that leads to higher yields, “the RBI would have a good amount of ammunition to deal with the rise in yields", said Badrish Kulhalli, head of fixed income at HDFC Life Insurance Ltd in Mumbai.
The 182-day treasury bill was sold at a cutoff yield of 3.4507%, way below the 3.55% estimated in a Bloomberg poll. The RBI accepted only 11 bids of the 164 bids at the auction, the central bank statement showed.
The central bank in its April policy had said it would do more Operation Twists in addition to the explicit Rs1 trillion of bond purchases for this quarter under a new plan to support the government’s near-record Rs12 trillion of bond sales for the current fiscal year.
Sovereign bonds were largely resilient on Wednesday, with the yield on benchmark 10-year bond steady at 6.05%. It has declined 13 basis points this month.
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