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Holding Above Recent Lows

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BLOCK, Large 3Y Midcurve Put Condor

INDIA

The RBI conducted auctions in two tenors yesterday, for a total of INR 260bn vs planned INR 220bn:

Sold INR 130bn of 5.15% 2025 bonds, average yield 5.541%, bid/cover 2.66
Sold INR 130bn 5.85% 2030 bonds, average yield 5.9726%, bid/cover 1.83

  • In both cases the bonds were sold at lower yields than expected which helped to subdue yields in the later part of the session.
  • In the wake of the sale, though, there was chatter of RBI shenanigans. The "others" category of buyers in the secondary market saw record volume yesterday, purchasing INR 250bn of bonds, primary dealers on the other hand were net sellers of INR 259bn. The conclusion reached by many market participants is that the RBI was an active buyer in the secondary market in order to support demand at auction.
  • There was also a Bloomberg sources article that posited the RBI could be forced to consider raising interest rates if inflation holds above target for a third consecutive quarter. The RBI has a 2%-6% target band that has been exceeded for the previous two quarters, another period above target would mean the RBI has to write to the government to explain why the RBI is missing its goal.
  • Inflation printed 4.59% in December, down from around 7% in the previous months – ahead of the RBI meeting on Feb 5 the lower inflation had prompted talk of a rate cut.
  • As a note, the RBI will also hold auctions later in the session today.