RBI Cancels Rs 11,000 Crore Bond Auction; 10-Year Yield Eases 7 bps to 6.53%
Overview of the Market Shift
On Friday, the Reserve Bank of India (RBI) made a significant move by canceling a scheduled 7-year bond auction worth ₹11,000 crore. This decision had a notable impact on market dynamics:
– Yield Movement: Following the cancellation, the yield on the benchmark 10-year sovereign bond dipped by 7 basis points, closing at 6.531%.
– Bids Over Expectations: The cancellation occurred because the yields bid by participants exceeded the RBI’s acceptable threshold.
– Intraday Performance: Around 3 PM, 10-year bond yields were trading near 6.595%, but eased to 6.548% post-announcement.
Market Reactions
Vijay Sharma, Senior Executive VP at PNB Gilts, elaborated on the strategic nature of this cancellation:
– Yield Stability: The RBI’s discomfort with the prevailing yield levels suggests a calculated effort to stabilize the market.
– Mixed Responses: While longer-term papers showed little reaction, mid-term bonds (8-15 years) experienced a significant rally.
– Market Signal: Sharma emphasized that the RBI’s actions aimed to convey a robust message about maintaining market health.
Yields Context
A broader analysis reveals an underlying trend affecting bond yields:
– Rising Yields: Since June, market bond yields have been on an upward trajectory after a 50-basis point cut in policy rates by the RBI.
– Peak Rates: By late August, 10-year government bond yields had surged to 6.64%, rising from a low of 6.12% in June, as per CCIL data.
– Contributing Factors: This ascent can be attributed to market uncertainties and elevated risk premiums, prompting traders to bid higher amid declining sentiment.
Conclusion
The RBI’s cancellation of the Rs 11,000 crore bond auction serves as a proactive strategy in regulating market volatility. As bond yields continue to shift, it’s essential for investors to stay vigilant about the RBI’s policies and market trends. The overall stability of bond markets hinges on these developments, making it crucial to monitor future actions from the RBI.