RBI open market operations: RBI’s OMO buys get a strong response amid high prices

Mumbai: The central bank’s bond purchases in open market operations (OMO) on Tuesday saw strong demand, with market participants offering bonds worth more than double the notified amount. Prices for the bonds were majorly at a premium from market prices, and in line with expectations, treasury heads said.

Bids offered for this OMO round were worth ₹1.32 lakh crore, against the notified amount of ₹50,000 crore. The Reserve Bank of India (RBI) has scheduled further bond purchases worth ₹75,000 crore for the month of May with an aim to quicken the pace of policy rate transmissions.

“Prices for most bonds were at a premium, except for the paper maturing in 2031, which was priced at a discount from the markets,” said Mataprasad Pandey, vice president at Arete Capital Services. “The auction had good demand and further auctions are expected to see great demand as well because market participants know that they will get a good price.”

The auction did not have ultra long tenured bonds, and maturities ranged from 3- to 14-year paper. Securities maturing in 2035 – the 7.10% GS 2034 paper – saw the maximum demand.

Investors have tried to exit their positions by selling the 7.10 2034 paper to RBI, as they would want to make space for the new 10-year paper, a bond trader from a private sector bank said.

RBI auctioned a new 10 year paper on Friday, May 2, while the 7.10% GS 2034 paper used to be the benchmark security before October 2024. The next OMO purchase is scheduled for Friday, May 9 for a quantum of ₹25,000 crore.Yields of the 10-year benchmark security closed at 6.35% on Tuesday, up 3 basis points from its previous close.