The bond market is getting ready for another year with less than 6% yields on 10-year instruments after the Reserve Bank of India (RBI) has indicated its displeasure at higher rates. On Friday, the central bank handed over almost the entire bond auction to primary dealers, as markets were seeking higher returns on the selling of five-year and ten-year bonds. On Monday, the central bank said it would purchase Rs 20,000 crore bonds from secondary markets on Wednesday.
Such open market operations (OMO) are now expected to be a common theme for the remainder of this fiscal year, and will continue in the next one as well, bond dealers are now expecting. However, the RBI is still not in a mood to issue an OMO calendar, which was the expectation in some sections of the market. That calendar is unlikely to come; rather, the RBI would want to intervene as and when yields rise, bond dealers are now saying.
he 10-year bond yield closed at 6.04 per cent on Monday after the OMO announcements by the RBI. It had closed at 6.08 per cent on Friday, but was trading at 6.12 per cent after the monetary policy and before the cancellation of auctions. The expectation in the market now is that the OMO would be at least Rs 3 trillion for the next fiscal year, just as it had been in this one, irrespective of an OMO calendar. If such heavy OMO support is gained in the next fiscal, the 10-year yields can remain below 6 per cent without much of a problem, say bond dealers.
RBI Governor Shaktikanta Das sees low yield as a public good, but the organization seems to be keen on giving signals on the 10-year segment mainly, said senior bond dealers.