RBI’s Bond Purchases Push Yields To A Three-Year Low

Indian sovereign bond yields slid to their lowest level in nearly three years after data showed the central bank made significant debt purchases to help ease a cash shortage.

The yield on the 10-year fell as much as seven basis points to 6.65%, a level last seen in February 2022. It was last down four basis points.

The Reserve Bank of India bought government securities worth 101.75 billion rupees ($1.2 billion) in the week ended Jan. 17, data released after market hours Friday showed. That confirmed speculation among traders the authority may have stepped in to ease a cash squeeze that widened to the most in a decade last week.

“We expect them to continue bond purchases,” said Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank Ltd. “The official data confirms the presence of the central bank” in the secondary market. 

The 10-year yield should find a floor around 6.65%, as the US FOMC and India’s federal budget are due this week, Pawar said. 

Data from the so-called others category, which includes central bank purchases, show 187 billion rupees of purchases last week, which suggests the buying by the RBI have continued.

The central bank buys bonds from traders in the secondary market, providing them with a source of cash which can flow through the financial system, easing any liquidity shortages.

The authority added 1.9 trillion rupees via its daily repo auction on Monday.