India bonds climb as RBI resumes Operation Twist to cool yields

By Subhadip Sircar

India’s central bank will resume its Federal Reserve-style Operation Twist after weak demand at two successive auctions and inflation concerns drove up yields. Sovereign bonds climbed.

The Reserve Bank of India will purchase 100 billion rupees ($1.3 billion) of bonds and sell an equivalent amount of shorter debt on Aug. 27 and Sept. 3, respectively, it said in a statement. The last such operation was held on July 2.


Yields on 5.79% 2030 bonds slid seven basis points to 6.16% after the announcement. The new benchmark 5.77% 2030 debt was down four basis points after surging over 30 basis points in the past three weeks.

“This was expected given the panic response that saw yields surging in the last two sessions after Friday’s auction,” said Pankaj Pathak, debt fund manager at Quantum Asset Management Ltd. in Mumbai. “RBI needs to be more frequent in their OMO announcements, given the huge supply.”

Indian government bonds have been under pressure after the RBI left rates unchanged at its August meeting and refrained from announcing measures to support a market facing a record 12 trillion rupees of debt supply this fiscal year. The latest minutes showed that the central bank’s rate-setting panel had turned less dovish with higher inflation.

Market strains became more evident after a sale of benchmark 10-year debt had to be rescued by underwriters on Aug. 14. The Aug. 21 auction of longer bonds saw cutoff yields that were higher than expected, leaving traders wondering whether the authority was signaling that yields may head higher.

The RBI on Tuesday said it would buy bonds maturing in 2024, 2027, 2030, 2032 while selling 182-day treasury bills on Aug. 27.