RBI may be buying bonds from market: Traders

Yields on government bonds have dropped 10-15 basis points over 6 trading sessions and market participants are speculating the central bank may have been one of the buyers from the market.

The Reserve Bank of India (RBI) normally conducts auctions to buy bonds in so called open market operations, and also picks up from the secondary market.

Market talk the central bank may be buying surfaced after the Clearing Corporation of India data showed a total of Rs 2,830 crore (USD 625 million) of bonds were bought over the past five sessions under an "others" category, which includes insurers, provident funds, pension funds and the central bank.

"The RBI could be buying bonds on behalf of state government or in anticipation that there may be shortage of a particular security," said one person familiar with the central bank's operations.

"This is not a strategy-led buying, but is a part of the continuous process of central bank investment. That is why the amounts are miniscule compared to the total volume," he said.

Volume in government bonds market shot up to Rs 10,100 crore on Monday from a daily average of Rs 8,440 crore last week. As on 0900 GMT on Tuesday, volumes were robust at Rs 6,500 crore.

The big sellers were foreign and private sector banks.

The most-traded 8.13% 2022 bond was trading at 8.09%, down 1 basis point on the day. Compared to February 4, the yield is down 15 basis points.

The central bank buys or sells bonds as part of its investment call on behalf of state or federal governments, other central banks and itself.

"We publish this data with a week's lag every week in the weekly statistical supplement," said a spokeswoman at the RBI.

The RBI had bought Rs 37,068 crore of bonds under its open market operation during December and January to help ease a cash crunch with banks. Since then, liquidity has improved thanks also to accelerated government spending.

Three dealers said the central bank, which partly owns 6.57% 2011 bond that matures on Thursday, may be buying bonds in anticipation of the cash flow. Redemptions in the bond are estimated to total Rs 17,083 crore.

The central bank does not comment on daily market operations and traders said insurance companies, which receive cash flows during this time of the fiscal year, could be buying bonds.

"A lot of insurance companies keep buying bonds based on their cash flows. I don't really think it is RBI buying that we have been seeing in the market recently," the head of rates trading at a large foreign bank said.

"The RBI can directly buy through open market operation if they want to. Such buying would actually contradict their own view, hence don't think it's them," he said.

(USD 1 = 45.3 rupees)