In the midst of growing expectations that the central bank will enter the market to prevent yields from rising too high, India is expected to sell another Rs 260 billion ($3.6 billion) of bonds on Friday.
Surprise demand at a special government debt auction on Thursday spurred talk that, as other investors pulled back, state-run banks and primary dealers were scooping up bonds to sell to the Reserve Bank of India. Recent market interventions by the RBI, including the open market activity this week, have helped anchor the 10-year benchmark yield below 6 percent.
“The market reaction indicates that the central bank may keep benchmark yields below 6% to 6.10% through a combination of primary and secondary market intervention,” said Ritesh Bhusari, deputy general manager for treasury at South Indian Bank. “Otherwise, there is a lack of genuine commercial demand.”
The central bank’s actions show its commitment to keeping borrowing costs in check as the government sells debt at a record pace to support the economy through the pandemic. The RBI’s challenge is to reassure market participants that it will stick to its accommodative stance, even as it starts to unwind its emergency liquidity measures.
The government will sell Rs 2.16 trillion of bonds in February through March, Rs 800 billion more than its earlier target. It has another Rs 12.1 trillion of sovereign debt supply lined up for next year.