Bonds Surge Post RBI Announces Purchase of Rs 100 Billion Securities

Sovereign bonds in India witnessed a surge after Reserve Bank of India announced that it will purchase debt to meet the cash requirements of the banking system in India.

On Friday-May 4, 2018, the Reserve Bank of India said that it would buy Rs 100 billion of securities with maturities ranging from 2020 to 2033 on May 17. The purchase comes after the shortest bond on sale Friday was rescued for a third straight auction by underwriters.

The value of yield was down by 10 basis points to 7.63 percent on the debt maturing in 2028 in Mumbai.

Rupee also lost marginally to stand at 67.17 against the dollar, its weakest since February last year.

The open market purchases announcement adds to the measures taken by the authorities to support the market. The steps include increasing the cap for foreigners, reducing debt sales and allowing banks to spread out trading losses.

Bond yields have been surging in India, even as interest rates go higher, with most of the top banks in the country, raising interest rates on deposits.

The country's largest bank, State Bank of India has already raised deposit rates, while a few other banks have followed suit. This has lend to bond prices dropping, and is not good news, especially for government banks, which have to then report marked to market losses.

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