Summary of this article
RBI will buy seven bonds worth Rs. 50,000 crore on December 11
Here's what investors should know about the auction
The Reserve Bank of India will buy seven government securities (G-Sec) of different maturities from the bond market on December 11. Bonds worth Rs. 50,000 crore maturing between four to 25 years will be bought by the RBI through an auction.
The RBI Governor Sanjay Malhotra on December 5 said that the central bank will conduct bond buys through open market operation (OMO) auctions to the tune of Rs. 1 lakh crore in December. Malhotra announced the bond-purchase while detailing the monetary policy statement .The auction to be held on December 11 will be the first tranche of the total buys announced by the RBI. The second tranche which will also be Rs. 50,000 crore will be held on December 18. The RBI will also conduct a dollar/rupee buy/sell swap for three years, worth $5 billion on December 16.
The seven bonds offered to be bought by the RBI include a bond maturing in 2029 with a coupon of 6.75 per cent, a bond maturing in 2031 with a coupon of 7.02 per cent, bond maturing in 2032 having a coupon of 7.26 per cent. The RBI has also offered to buy a 2034 bond with a coupon of 6.79 per cent, 2036 maturing bond having a coupon of 7.54 per cent, a 2039 maturity bond with a coupon of 6.92 per cent, and a 2050 bond with a coupon of 6.67 per cent.
Malhotra on December 5 said that the central bank will take steps to infuse sufficient liquidity into the banking system while also cutting the benchmark repo rate by 25 basis points to 5.25 per cent. The OMO auction on December 11 will be the first one since May. The RBI had bought G-secs of around Rs. 5 lakh crore through OMO auctions between January and May this year. Malhotra had also said that the central bank is not looking to buy state government bonds through OMO auctions from the market during the post policy press conference.
Retail investors can offer to sell the bonds they hold to the RBI at the OMO auction through RBI's retail direct platform. However, these OMO auctions typically see participation from institutional investors looking to pare their holdings.
For retail investors looking to invest in bonds, the OMO buy of the RBI coupled with the rate cut is expected to raise prices of G-secs in the secondary market. Some market participants expect the yield on the 10-year benchmark G-sec to fall to around 6.25-6.30 per cent due to these policy measures by the RBI.
“Bonds across the yield curve will appreciate because the RBI has given a good mix of bonds with different maturities,” a bond dealer at a private sector bank who did not wish to be named, said. “There is still some scope that yield will fall and there could be another cut on the way if external macroeconomic factors permit, so going for a liquid gilts (G-sec) could see some gains, be it a five-year bond or a 15-year bond.”
