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RBI to buy longer-duration bonds Monday

Date: 27-12-2019
Subject: RBI to buy longer-duration bonds Monday
India’s central bank has sought to buy Rs 10,000 crore worth of longer-duration bonds for the second time in a fortnight and sell an equivalent amount of debt maturing in FY21 in a move experts believe should help lower yields, reducing the gap between policy rates and those prevailing in the market.

In the auction scheduled to take place on Monday, the Reserve Bank of India (RBI) will buy bonds worth Rs 10,000 crore, due to mature in 2029. On December 19, RBI conducted its first version of the so-called of Operation Twist, a US Federal Reserve tool that seeks to change the shape of the yield curve. The benchmark yield has dropped 17 basis points since then, pushing prices up.

After the global financial crisis when the yields did not budge much despite increasing liquidity, the then Federal Reserve Chairman Ben Bernanke purchased bonds at the longer end, pushing yields down and raising rates in the near term. This came to be termed ‘Operation Twist’.

The benchmark bond yield surged 30 basis points since RBI’s bi-monthly policy in the first week of December 5, when Mint Road kept the repo rate unchanged despite consensus expectation of a quarter percentage point cut.

Source: economictimes.indiatimes.com

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