Mumbai: The Reserve Bank of India (RBI), bond market experts said, has stepped up its intervention in the government securities market this week, purchasing bonds on-screen. The move is likely aimed at offsetting liquidity drained by its actions in the foreign exchange market and ensuring that transmission momentum does not stop, market participants said.
The move helped stabilise yields at a time when market sentiment has weakened due to the US-Israel and Iran war. Yield on the 10-year benchmark bond, which opened at 6.72% on Wednesday, eased to 6.67% during the day. Yields softened further on Thursday to close at 6.64%, data from Clearing Corporation of India Ltd showed.
Market participants said the central bank may have been purchasing bonds after data from CCIL showed a sharp increase in buying under the 'others' category that includes pension funds, insurers and central banks. Purchases under this category climbed to '17,254 crores on Thursday, and '20,285 crore on Wednesday, compared with '8,602 crore and '7,484 crore earlier this week. "Additionally, buying in the 10-year bond has led traders to believe that there may be a level beyond which there is discomfort for the central bank. And this could cap the upward movement in yields," Pawar said. "But again, this is speculation. For all we know, there may be a large insurance company buying bonds."
Market participants also said that buying in bonds happens majorly in the second half or toward the end of the session, which is likely done to offset the RBI's intervention in the currency market that day or the previous day. The g-sec market closes at 5 pm, while the currency market closes at 3.30 pm.
The 'Others' category was the only category purchasing bonds on Thursday. All other categories, which include private banks, foreign banks, PSUs, mutual funds and primary dealers sold bonds, data shows. The 'Others' category has bought net '52,200 crores worth of bonds over the past nine days, and nearly 39% of these purchases were made on Wednesday, according to CCIL data. "Comfort increases for traders when the 'Others' category and the 'PSU Banks' category are buying," said a trader at a primary dealership.
Source Name : Economic Times