India Bond Traders Are on Edge Amid Conflicting RBI Signals

This image has an empty alt attribute; its file name is logo-cropped-11-news-300x66.png

In emerging market news, India bond traders are on edge amid conflicting Reserve Bank of India signals. Just days after announcing measures to lower yields, the RBI has given traders signals about their reluctance in pushing rates down further. This stems from the RBI going back on their word and purchasing bonds at higher than expected yields. With bond markets more unpredictable than ever, it’s crucial to have the right analytical tools in place to stay ahead of the competition. Learn how bond and credit traders are utilizing Overbond’s AI models to stay on top of the fixed income market by getting in touch with us.

Source: Bloomberg

Just days after announcing measures to lower yields, the central bank has given signals that traders interpret as a lack of interest from authorities in pushing rates down further.

The yield on the 5-year bond has climbed 28 basis points so far in the three trading sessions to Tuesday while the rate on 10-year bonds is up 16 basis points to 6.06%, retracing much of the earlier fall. The quick turn in sentiment shows a tug-of-war between the hopes of the bond market and the central bank’s approach to absorbing a record supply of debt from the government.

Yields rose as traders tested RBI's resolve to keep yields in check

Late in August, the Reserve Bank of India had announced steps to cool yields, including allowing banks to hold more debt without having to mark losses, fresh rounds of Federal Reserve-styled Operation Twists and liquidity injections. However, in a change of tone, at Thursday’s Operation Twist, the central bank accepted only 71.3 billion rupees ($970 million) of bonds out of a possible 100 billion rupees, and on Friday, it again surprised markets by buying bonds at higher-than-expected yields.

The RBI also said it would inject one trillion rupees via 56-day repo operations while offering to take back longer duration one- and three-year cash.

“The RBI seems to be giving some conflicting signals which are creating skittishness in the market,” said Pankaj Pathak, a fixed-income fund manager at Quantum Asset Management Ltd. in Mumbai. “There is nervousness on possible extra borrowing ahead of the second half borrowing calendar,” which is due by end-September.