Operation Twist: India's long-term bonds turn Asia's top performer
Yield on 2029 debt fell as much as 16 basis points to 6.59%, the most in more than 2 months.
By Bloomberg | Updated:
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RBI will buy Rs 10,000 crore of the 2029 debt and sell an equal amount of notes maturing next year in an auction on Monday.
By Subhadip Sircar and Kartik Goyal
Benchmark 10-year bonds rallied from near a three-month low after the central bank said it will buy Rs 10,000 c rore ($1.4 billion) of longer-tenor bonds while selling shorter debt in a move reminiscent of the US Federal Reserve’s Operation Twist.
The yield on the 2029 debt fell as much as 16 basis points to 6.59%, the most in more than two months, making it Asia’s top performer. The 7.57% 2033 yield also slid 20 basis points. Yields on the 6.35% 2020 bond -- a very short-end paper -- jumped 20 basis points.
The move had been suggested by some traders and strategists as a way to pass on more of the central bank’s five rate reductions this year to businesses and individual borrowers. With investment and consumption both weak in India, policy makers are trying to spur credit and lift growth from a six-year low.
Operation Twist: RBI adopts a Jerome Powell manoeuvre
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The Reserve Bank of India will conduct a simultaneous sale and purchase of bonds, it said on Thursday, in a move seen by market participants as an attempt to bring longer-term yields lower. It is the first time RBI would be conducting a special OMO of this kind, similar to the 'Operation Twist' carried out in the US near the start of the decade.
The Reserve Bank of India will conduct a simultaneous sale and purchase of bonds, it said on Thursday, in a move seen by market participants as an attempt to bring longer-term yields lower. It is the..
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The central bank said it would buy government securities (G-Secs) with a 10-year maturity while, at the same time, sell government bonds with just one-year maturity — both worth Rs 10,000 crore each on Monday.
The central bank said it would buy government securities (G-Secs) with a 10-year maturity while, at the same time, sell government bonds with just one-year maturity — both worth Rs 10,000 crore each ..
Read More
Economists have been expecting the central bank to launch this special manoeuvre so that rate cuts by it since February this year could lead to a commensurate drop in the rate of interest in the economy. Although RBI has cut interest rate five times this year by a total of 135 basis points, the yield on the 10-year G-Secs has come down by only 80 bps — from 7.55% in early-February to its Thursday’s close of 6.75%. Even less has been the drop in rate of interest that banks charge to their borrowers.
Economists have been expecting the central bank to launch this special manoeuvre so that rate cuts by it since February this year could lead to a commensurate drop in the rate of interest in the econ..
Read More
On December 23, RBI will buy 10-year GSecs worth Rs 10,000 crore and, on the same day, it will also sell one-year bonds of four varied tenures worth Rs 10,000 crore in all. Since the price of a bond and the yield on it move in opposite directions, buying of a bond pushes up its price and pulls down the yield. By buying 10-year bonds, RBI wants to bring down the benchmark yield — one of the main determinants of the rate of interest banks charge their borrowers.
On December 23, RBI will buy 10-year GSecs worth Rs 10,000 crore and, on the same day, it will also sell one-year bonds of four varied tenures worth Rs 10,000 crore in all. Since the price of a bond ..
Read More
Economists believe this will probably be the first of RBI’s ‘Operation Twists’ and it would resort to some more of this method to pull down the rate of interest in the economy.
Economists believe this will probably be the first of RBI’s ‘Operation Twists’ and it would resort to some more of this method to pull down the rate of interest in the economy.
“The relentless steepening of the yield curve is getting pacified by the RBI coming in and signaling ‘I am here to support,’” said Lakshmi Iyer, chief investment officer for fixed income at Kotak Mahindra Asset Management Co. in Mumbai. “This move brings some sort of a sanity check.”
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The Reserve Bank of India in a statement late Thursday said it will buy Rs 10,000 crore of the 2029 debt and sell an equal amount of notes maturing next year in an auction on Monday.
The concept is similar to Operation Twist used by the Fed in 2011-2012 in an effort to cheapen long-term borrowing and spur bank lending. The Fed then swapped short-term Treasury securities for longer-term government debt, which reduced the gap between two- and 10-year yields.
In India, the difference between the benchmark 10-year yield and the RBI’s policy rate was 160 basis points before the announcement. That’s way higher than the average spread of 55 basis points seen during the 2015-2017 easing cycle, according to Deutsche Bank.
The steepening of the curve in the longer end reflects concerns about the government adding to record borrowing as it gets ready to prime the economy. The slowdown has reinforced doubts about the administration meeting its budget aim of 3.3% of GDP this fiscal year.
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“The RBI should increase the intensity of its Operation Twist via more vigorous switches of government bonds focused on securities in the tenure of 7-10 year plus,” said Madhavi Arora, economist at Edelweiss Securities Ltd.
Future operations will depend on the success of Monday’s auction, traders say.
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“There’s limited appetite for short-end bonds so the RBI will need to offer higher yields,” said Naveen Singh, head of fixed-income trading at ICICI Securities Primary Dealership.
