OMO (Open Market Operations) bond purchase auction of Rs 150 billion held by the RBI last week helped stabilize bond yields. Government bond yields rose in the initial part of the week on lack of demand at lower levels of yields but with the OMO auction announcement, bond yields fell to close down week on week.
RBI held an OMO bond purchase auction for Rs 150 billion last week. The central bank bought the full amount of Rs 150 billion as notified in the auction. RBI has bought back bonds worth Rs 300 billion in April through two OMO auctions of Rs 150 billion each including the OMO held last week.
The government has auctioned Rs 600 billion of bonds in April. RBI OMO purchases of Rs 300 billion coupled with bond redemptions of over Rs 400 billion has resulted in net supply at negative Rs 10 billion in April. Bond markets should trade positive over the coming weeks given net negative supply of bonds coupled with expectations of stable interest rates and expectations of Rs 300 billion of RBI OMO bond purchase auctions in May.
Government bond markets saw yields close marginally lower last week as the RBI conducted a Rs 150 billion OMO bond purchase auction. The benchmark ten year bond, the 7.59% 2026 bond saw yields closing down by 2bps at 7.44% levels. The 8.27% 2020 bond saw yields staying flat at 7.38% levels. The 7.88% 2030 bond saw yields falling by 3bps to close at 7.74% levels while the 8.13% 2045 bond saw yields closing up 2bps at 7.83% levels. Government bond yields are likely to trend down on improved demand supply position in the market.
OIS market saw one year OIS and five year OIS yields close down week on week. One year OIS yield fell 2bps and five year OIS yield fell 2bps to close at 6.67% and 6.70% respectively. OIS yield curve will steepen on easing liquidity conditions.
Benchmark AAA corporate bond spreads closed mixed last week as market shifted positions. Three year bond yields rose by 5bps to 7.93% levels with spreads up by 4bps at 52bps levels. Five year bond yields fell 2bps at 8.06% with spreads down by 2bps at 54bps levels while ten year bond yields were flat at 8.17% with spreads up 2bps at 59bps levels. Corporate bond yield and spread curve will fall as market searches for yields amidst accommodative monetary policy.
System liquidity as measured by bids for Repo, Reverse Repo, Term Repo and Term Reverse Repo in the LAF (Liquidity Adjustment Facility) auctions of the RBI and drawdown from Standing Facilities (MSF or Marginal Standing Facility and Export Credit Refinance) was in deficit of Rs 917 billion as of 29th April. The deficit was Rs 991 billion in the week previous to last. Government surplus was at levels of Rs 211 billion last week, up by Rs 190 billion week on week. Liquidity will ease as RBI pumps in liquidity through fx purchases and OMOs.