Bond market shrugs off more  govt  borrowing

The authorities’s further ₹1.1 lakh crore borrowing didn’t rock home bond markets on Friday, with yields on the benchmark 10-year bond rising simply three foundation factors, thanks primarily to the current spate of central financial institution measures which have saved yields under 6%.

On October 9, Reserve Bank of India governor Shaktikanta Das doubled the dimensions of open-market bond purchases and requested merchants to think about their “shared responsibility” to keep up a secure market.

Late on Thursday, the Central authorities stated it would borrow ₹1.1 lakh crore to on-lend to states struggling to fill a tax hole. This is along with the ₹4.34 lakh crore it plans to borrow earlier than March-end, bringing whole authorities borrowing within the October-March interval to ₹5.44 lakh crore. The authorities will promote five-year bonds to lift ₹50,000 crore and problem new three-year bonds for the remaining.

“The additional borrowing could put more pressure on the five-year segment due to additional supply. The market is expecting RBI support in the form of open market operations (OMOs) and in that segment also,” stated Naveen Singh, senior vice-president, ICICI Securities Primary Dealership.

The Reserve Bank of India on Friday stated it would conduct the first-ever buy public sale of state authorities bonds. “It has been decided to conduct a purchase auction of SDLs (state development loans) under Open Market Operations (OMOs) for an aggregate amount of ₹10,000 crore on October 22, 2020, keeping in view that this is the first-ever OMO purchase of SDLs. Depending on market response, the size of the auctions may be enhanced in the subsequent auctions,” a central financial institution assertion stated.

The Reserve Bank of India will purchase SDLs issued by 15 states together with Andhra Pradesh, Arunachal Pradesh, Maharashtra and Kerala. The tenure of the papers ranges from 9 to 10 years. The central financial institution added that it reserves the precise to determine on the quantum of buy of particular person securities, settle for bids for lower than the combination quantity, buy marginally larger/decrease than the combination quantity, settle for or reject bids.

The Reserve Bank of India’s newest financial coverage had revealed its plan to conduct an OMO of those SDLs to make sure liquidity and help state authorities borrowing programmes.

State governments are anticipated to borrow as a lot as ₹2 lakh crore within the third quarter, 33% larger than the precise quantity of ₹1.5 lakh crore final yr. This might lead to elevated SDL gross sales within the fourth quarter, as they scramble for funds amid a pointy contraction in their very own tax collections and the shortfall in GST compensation cess at ₹2.35 lakh crore.

State governments have borrowed practically ₹3.76 lakh crore via SDLs between April and the primary week of October, 53.6% larger than throughout the identical interval within the earlier yr, based on ICRA Ratings.