Radhika Rao, Economist at DBS Bank said these OMOs were largely expected and so the sovereign bond yields haven’t reacted much.
Reserve Bank of India (RBI) has announced a bond buyback of Rs 10,000 crore through open market operations (OMOs). DBS Bank wrote a note on how this will impact the overall money market operations.
To discuss the details of the note, CNBC-TV18 spoke with Radhika Rao, economist at DBS Bank. She said these OMOs were largely expected and so the sovereign bond yields haven’t reacted much.
"In the first half when borrowing schedule was announced there was relief rally because the govt had borrowed less. So, in H1FY19 about 40-45 percent of borrowings have gone through and now for second half (H2) there have been indications of positive surprise that the borrowings might not be as big as earlier feared, which is a positive."
When asked if there would be a liquidity line for MFs in particular, she said, "Given the supportive comments by the RBI, Sebi over the weekend and later the finance ministry, we would have assumed that liquidity line along with OMOs or separately by now because the market are choppy. Sometimes, the MFs may not even tap upon this window but it gives a sense of relief that liquidity option is available."
"However, one can also look forward to the RBI’s policy decision next week, where some non-policy rate decisions taken as well with regards to liquidity relief."
According to Rao, the house is working with 8.23-8.25 percent range as a strong resistance for the 10-year bond yields. "If OMO buybacks are made regular and is able to take out the liquidity fear from the market then bond yields could settle around the 8.10-8.20 percent range."
"However, the rupee angle remains key for the bond markets and if that come under renewed pressure and OMOs are not regular then 10-year bond yields could breach 8.23-8.25 percent. Therefore, the house would be playing between 8.05 to 8.25 percent range on 10-year bond yields on the long end of the curve," said Rao.Source: CNBC-TV18