Rs 1.25 lakh crore OMO likely to bring down yields ahead of the new 10 year auction
The Reserve
Bank
of India announced it will purchase Rs 1.25 lakh crore government bonds in open market operations (OMO) in four tranches spread across May, the calendar likely aimed to drive down yields before the new 10-year auction is scheduled on Friday, treasury experts said.
These purchases will take
place
on May 6, May 9, May 15, May 19
The quantum of the OMOs has surprised market participants and is expected to soften government bond yields by at least 4-5 basis points. The 10 year benchmark
yield
has seen some uptick in the past two trading sessions and closed at 6.39% on Monday, up from 6.36% the previous day. Last week the 10 year yield touched a key level of 6.30%, CCIL data showed.
'There seems to be a tug of war between headwinds and tailwinds for the yield. The border tensions between India and Pakistan have pushed yields up by 7-8 basis points since last week and the recent OMO announcement will now soften yields and we will most likely open lower on Tuesday,' said Mataprasad Pandey, vice president at Arete
Capital
Services.
The RBI had previously announced OMOs in four tranches for a total of Rs 80,000 crore throughout the month of April, of which, the last tranche of bond purchase worth Rs 20,000 crore is scheduled for Tuesday (April 29).
"Yields have risen in the past two trading sessions and had a threat of going up even more due to border tenisons. The RBI may not be very happy with higher yields especially since we have a 10 year auction this week, and I think this large quantum of Rs 1.25 lakh crore is due to the looming threat of war,' said a bond trader at a primary dealership.
'With the new 10 year to be auctioned on Friday, the RBI would want yields to reduce to lower the borrowing costs for the government,' Pandey said.
The RBI plans to raise Rs 30,000 crore via the new 10 year paper and the new bond will replace the 6.79% 2034 bond as the benchmark government security, which has an outstanding amount of Rs 1.84 lakh crore.
The OMOs would also ease banking system
liquidity
to 1% on NDTL and offset the monthly GST outflows that happen around the 20th of each month, economists said.
System liquidity has been in a daily average surplus of Rs 1.5 lakh crore as of April, RBI data showed.
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