RBI OMO: Hard bargaining at RBI OMO lifts yields

Mumbai: Aggressive bidding in the open market operation (OMO) purchase drove down prices of bonds, as the RBI continued to support liquidity by infusing ₹40,000 crore, traders said. Participants offered bids worth ₹1,81,116 crore, more than 4 times the notified amount.

The RBI also conducted an overnight variable rate repo (VRR) auction for ₹2.75 lakh crore, where RBI received bids for ₹2.35 lakh crore. System liquidity stood at a deficit of ₹2.07 lakh crore on Wednesday, and has been in a daily average deficit of ₹1.28 lakh crore in February.

“Participants tendered aggressively and were willing to sell, which also triggered a selling in NDS-OM. This is not a very positive situation for bond yields to hold up,” said a trader from a primary dealer. NDS-OM is a platform where bonds are traded in the secondary market.

Yields on the 10-year benchmark government security hardened a bit, to close at 6.71% on Thursday, from its previous close of 6.69%, CCIL data showed.

Some participants had expected yields to ease after the RBI announced additional measures to boost liquidity after the monetary policy. The RBI announced a long-term, 49-day variable rate repo (VRR) auction for ₹75,000 crore to be held on Friday, and had doubled the amount of this OMO purchase to ₹40,000 crore, from an earlier notified amount of ₹20,000 crore. “The broad market sentiment has turned a bit negative after the monetary policy, since it was a hawkish cut. After additional liquidity measures yields should have come down, but intervention on the currency front is continuing, and this is not boarding very well for rates,” said a trader from a private sector bank.

The RBI is also believed to have significantly intervened on February 10 and 11 to reverse one-sided depreciation in the currency, and is estimated to have sold over $10 billion, according to DBS Bank.