Indian bond yields skyrocket, market expects more RBI intervention

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Indian bond yields skyrocket, market expects more RBI intervention

By Swati Bhat

MUMBAI, Feb.22 (Reuters) – Indian bond yields surged on Monday, following higher yields on U.S. Treasuries, and as underwriters sold bonds in the open market, they were forced to buy in the an auction on Friday.

Bond yields have been skewed upward as investor appetite has been low despite the Reserve Bank of Indiaassurance that it would provide sufficient liquidity and ensure a smooth government borrowing program.

Underwriters bought Rs 108.94 billion in 10-year bonds and Rs 107 billion in 5-year debt on Friday at a limit-yield auction as RBI unwilling to accept the higher yields demanded by bidders. The RBI had decided to sell 110 billion rupees of each of these bonds along with two others.

On Monday, the benchmark 10-year IN058530G = CC bond yield was 6.19% at 9:30 a.m. GMT after rising to 6.21% earlier, its highest since August 24. It ended at 6.13% on Friday.

The 5-year benchmark yield traded at 5.77, after hitting 5.82%, its highest since April 16.

“Overall, the fundamentals are not supporting lower yields. Unless RBI intervenes continuously, yields will continue to rise,” said Harish Agarwal, a bond trader with First Rand Bank.

Traders expect the RBI not to roll over the floating rate reserve repo auction this week to encourage people to buy bonds instead of parking funds with the RBI.

The RBI is also expected to conduct a special open market operation worth Rs 100 billion on February 25, where it will simultaneously buy and sell bonds.

Overnight indexed swap rates also rose, following rising bond yields.

The INRSMONMI5Y 5-year benchmark swap rate = jumped to 5.35%, its highest level since February 5, 2020, as foreign banks continued to pay higher term premiums on expectations of rising rates. interest, traders said.

“Although this significant increase in bond spreads is a manifestation of the nervousness of market participants, we believe that the central bank will have to resort to unconventional tools to control the surge in bond yields,” National Bank of India (NS 🙂 Chief Economist Soumya Kanti Ghosh wrote in a note. (Editing by Jacqueline Wong)

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