MUMBAI: Yields on 10-year government bonds fell for the third straight day on Friday hit a two-month low.
At 10.25am, the 10-year bond yield was at 5.97%, a level last seen on 11 February, and down 5 basis points from the previous close of 6.03%.
On Wednesday, the Reserve Bank of India (RBI), while detailing the first bi-monthly monetary policy of the current fiscal, had announced a Rs1 trillion bond-buying plan to keep a lid on long-term interest rates amid a massive government borrowing programme.
As part of the government security acquisition programme (G-SAP 1.0), RBI will buy ₹1 trillion worth of bonds from the secondary market in three months to 30 June, with the first purchase of ₹25,000 crore on 15 April.
Bond yields have declined nearly 22 basis points from Wednesday’s high of 6.19% after the central bank’s bond purchase announcement.
“We believe the introduction of an official RBI bond purchase calendar via GSAP is positive for bonds,” brokerage firm Nomura Research said in a note.
Analysts expect net open market operations along with G-SAP purchase to total Rs4.5-5 trillion in FY22.
Emkay Research said a more vocal and defined G-SAP calendar for Q1FY22 will lead to a much lower sovereign risk premia ahead, amid an elevated borrowing calendar.
The re-instating of longer-term variable rate reverse repos (VRRR) was followed by an assuaging statement and this should be read as liquidity smoothening and not liquidity tightening, it adds.