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Translating…

Yields drop after RBI announces another OMO purchase of 10-year bonds.

Bloomberg|

Updated: Dec 27, 2019, 01.55 PM IST

Reuters

FILE PHOTO: A security guard's reflection is seen next to the logo of the Reserve Bank Of India (RBI) at the RBI headquarters in Mumbai
The RBI will buy 100 billion rupees ($1.4 billion) of 2029 bonds at the Dec. 30 auction, while selling a total 100 billion rupees of notes maturing in 2020.
By Subhadip Sircar

Benchmark sovereign bonds

gained in India after the central bank said it will buy long-end debt for a second week, stepping up the pace of its unconventional policy to lower borrowing costs.

The 10-year yield slid 7 basis points to 6.51 per cent, taking the week’s drop to nine basis points.

The Reserve

Bank of India

is embracing a Federal Reserve-style Operation Twist, where it buys long-end debt while selling short-end bonds after five rate cuts this year failed to lift economic growth. It will conduct a second operation on Monday, following on its first such move earlier this week.

bloomberg

The announcement, which came late Thursday, was earlier than most traders expected, according to Anindya Das Gupta, Mumbai-based managing director and head of treasury at

Barclays

Plc.

“I think the expectation from Twist goes up to one trillion rupees,” he said. “The back-to-back purchases is probably to pace it if they have to do it over 10-12 weeks.”

The unprecedented move has put a stop to the relentless steepening in India’s

yield curve

, as investors dumped long-end debt on concern the government will add to record bond sales.

The spread between the two-year and 10-year debt is down to 72 basis points from 93 basis points before the first purchase under the plan was announced.

The

RBI

will buy 100 billion rupees ($1.4 billion) of 2029 bonds at the Dec. 30 auction, while selling a total 100 billion rupees of notes maturing in 2020.

The operation will flatten the yield curve further, reducing the term premium that had widened amid market concerns over India’s fiscal slippage, according to a

Scotiabank

note.

Also Read

RBI satisfied with pace of monetary transmission

RBI to buy longer-duration bonds Monday

RBI to conduct second round of Operation Twist on Monday

RBI warns banks over focus on retail loans

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