Government Bonds See Yields Slide on Surprise Buyback Announcement

Govt Bond Yields: In the early hours of Monday's trading session, India's government bond market witnessed a decline in shorter-tenor yields following an unexpected move by New Delhi. Traders revealed that the government announced a buyback of securities late on Friday, catching the market off guard.

The yield on the 4-year government bond dropped significantly, reaching as low as 7.0980 per cent, compared to its previous close of 7.1537 per cent. By 9:20 a.m. IST, it had settled at 7.1112 per cent.

The announcement of the buyback is expected to inject 400 billion rupees into the banking system swiftly, aimed at easing the liquidity crunch observed towards the end of April. Citi, in a note, emphasized the immediate relief this move would provide in terms of liquidity.

Citi analysts speculated that the Reserve Bank of India (RBI) may have anticipated potential liquidity constraints, particularly with the ongoing elections, which could further tighten liquidity conditions.

The securities identified for buyback include the 6.18 per cent government security maturing in 2024, the 9.15 per cent 2024 bond, and the 6.89 per cent 2025 bond, as outlined by the Reserve Bank of India. Notably, there is no specified limit for individual securities within the 400 billion rupees auction.

Additionally, India's 10-year benchmark bond yield also witnessed a downturn, mirroring trends seen in U.S. bond markets. This came after softer-than-expected jobs data reinforced expectations of potential rate cuts by the Federal Reserve later this year.

With Reuters Inputs