Bond Market Snapshot For The Week
· 10-year benchmark Gsec yield declined by 6 bps last week
· RBI conducts OMO purchase of Rs 100 billion and is conducting Rs 300 billion of OMO purchase auctions this week
· Rs 250 billion of Long Term Repo (3 years) were auctioned, total long term repos amounts to Rs 1250 billion
· 5 year OIS yields increased by 18 bps to 5.12%
· Liquidity continues to be in a huge surplus of Rs 3.43 trillion
RBI, in line with Fed, ECB, BOE, BOJ and other global central banks has commenced bond-buying through OMO purchase auctions to infuse liquidity into the system and also to try and keep surging costs of corporate borrowing down with lower government bond yields. RBI conducted Rs 100 billion OMO purchase auction last week and will be conducting Rs 300 billion of OMO auctions next week. 10-year government bond yield fell from highs of 6.42% to close at levels of 6.23% on the back of OMO auctions.
RBI will have to aggressively conduct OMO purchase auctions starting April , given that the government will commence its borrowing program and markets are really worried about government finances. Worries on government finances took up government bond yields from lows of below 6.10% to over 6.4% in the last couple of weeks. Listen to my podcast on government finances for details.
FIIs are selling debt heavily in the face of a weakening INR that touched all-time lows against the USD. Severe USD shortage in the markets has caused panic selling by FIIs in INR debt. RBI is providing USD to the market through sell-buy swaps and also selling in spot markets to contain volatility. Read our note on USD shortage for details.
The market volatility on coronavirus is unlikely to end soon and there will be high volatility in government bonds.
The benchmark 10-year bond, the 6.45% 2029 bond, yield came down by 6 bps to 6.26% on a weekly basis. The benchmark 5-year bond, the 6.18% 2024 bond, the yield went up by 4 bps to 6.00% while 7.17% 2028 bond yield increased by 4 bps to 6.69% and the 6.68% 2031 yield level marginally gained 1 bp to 6.74% on a weekly basis.
One-year OIS yield declined by 7 bps to 4.62% while the five-year OIS yield increased by 18 bps to 5.12% on a weekly basis.
System liquidity as measured by bids for Repo, Long Term Repo, Reverse Repo, Term Repo and Term Reverse Repo in the LAF (Liquidity Adjustment Facility) auctions of the RBI and drawdown from Standing Facility (MSF or Marginal Standing Facility) was in surplus of Rs 3435 billion as of 20th March 2020. Liquidity was in a surplus of 4560 billion as of 13th March 2020.