In an utterly surprising move, the Reserve Bank yesterday said it will buy Rs 10,000 crore worth of bonds from the market today via open market operations (OMOs). Yields are expected to fall sharply tomorrow, reports Latha Venkatesh.
This is the first known instance of the Reserve Bank buying bonds in the last day of the fiscal year. Usually, you buy bonds or increase liquidity in the system because the liquidity is tight or because you want to give a signal to yields, but it rarely ever happens on the last day of the fiscal year.
The immediate gain of course is for the public sector or for the entire banking system because you are going to see such a huge rise in bond prices tomorrow, probably by even a rupee. The bond yield for instance, the tenure could dip all the way from 8.57% that it closed today to maybe 8.5% or even go below to 8.47%. That would mean a bond price rise of maybe 80 paise to a rupee. This is going to be the biggest single-day rise in bond prices on the last day of the financial year and that will mean your portfolio of bonds is going to suddenly look very good. But the key message that the Reserve Bank is trying to give is don't short this market, we will come and support the yields anytime before you can even guess.
Usually, the Reserve Bank doesn