Indian Bond Traders Tussle With RBI as Underwriters Again Save Auction

Traders in India are once again testing the central bank’s pledge to support the government’s massive borrowings, Bloomberg News reported. The tension is showing in the benchmark 10-year yield that surged past 6% on Thursday, a level seen as a line in the sand for the Reserve Bank of India. Underwriters had to buy almost 70% of government debt put up for auction as a near-record debt-sale plan and concerns over fewer liquidity measures spook traders. “The RBI is trying to fight this battle to keep yields closer to 6%, but there is a humongous supply of bonds, with market filled to the brim,” said Vijay Sharma, executive vice president for fixed-income at PNB Gilts Ltd. “Unless the market has a view that the RBI will keep rates here or bring it down, only then will they will be gung-ho on bonds.” The tussle between bond traders and the central bank for the past year has brought a public rebuke from Governor Shaktikanta Das, a meeting with bankers last month, and canceled auctions. Unlike other central banks, the RBI is seeking to tame borrowing costs without a quantitative easing program or yield-curve control even as Prime Minister Narendra Modi’s administration embarks on a spree of debt sales. Modi wants to borrow 12 trillion rupees ($165 billion) for the fiscal year staring April, a little less than the record issuance set for the current year. To support the program, the RBI will seek to buy more than 3 trillion rupees of debt while capping the benchmark yield at 6%. Read more.