The Reserve Bank of India (RBI) unexpectedly announced it would buy Rs. 10,000 crore ($1.50 billion) of government bonds via open market operation (OMO), after failing to sell all the debt it had offered to bidders earlier on 04 May 2018. It was the third straight week when the RBI couldn’t sell everything on offer, leading to a spike in bond yields.
The 10-year government bond yield rose to 7.75 percent from 7.74 percent before the auction result was announced. It had ended at 7.73 percent on 10 May 2018. The eligible participants should submit their offers in electronic format on the Reserve Bank of India Core Banking Solution (E-Kuber) system between 10.30 a.m. and 12.00 noon on May 17, 2018.
The bond-purchase announcement is expected to soothe the market, but the RBI may have to conduct a few more to assure investors of its support. Auction results released earlier on 04 May 2018 showed the RBI could sell only Rs. 255 crore ($38.13 million) of the 6.65 percent 2020 bond, out of the Rs. 2,000 crore on offer.
The remaining Rs. 1,745 crore had to be bought by primary dealers, the underwriters of local bond auctions. The RBI has taken a series of steps to bolster the bond market, including removing restrictions on foreign investors from buying only mid- to long-term tenures. Last month, it also raised the foreign investment limit.