Primary dealers stepped in to rescue an Indian bond auction as a spike in global yields dented demand for sovereign debt.
Underwriters bought about 20% of the 240 billion rupees ($3.3 billion) of bonds on offer at a weekly sale, the Reserve Bank of India said in a statement Friday. They bought 26.5 billion rupees of 2023 bonds and 21.3 billion rupees of 2035 notes. The RBI sold 25 billion rupees of 2050 debt, half of what it had planned to auction.
India’s bond auctions have had to be rescued multiple times this year as a massive government borrowing plan pushed traders to demand higher yields. The situation was worsened by the global rout on Friday sparked by concern over a possible increase in borrowing costs.
In a bid to calm bond traders, Governor Shaktikanta Das said earlier this week that the central bank will buy at least 3 trillion rupees of bonds through open-market purchases in the fiscal year starting April. The authority had previously tried to keep the benchmark 10-year yield at 6%.
It is a myth that RBI can draw any credible “line in the sand” with respect to the level of the 10-year bond yield, said Suyash Choudhary, head of fixed income at Asset Management. The RBI’s “efforts, including the governor’s appeal for an orderly evolution of the yield curve, should be interpreted as the central bank intervening to address the pace of change, rather than control the direction of yields.”
Moreover, to support Friday’s auction, the RBI had changed the methodology for the 6.22% 2035 bond to uniform-price method to shield winning bidders from incurring an extra cost. A sale of bonds for states for next week was also scaled down to 230.6 billion rupees from 309.1 billion rupees planned.
The yield on benchmark 10-year climbed five basis points Friday to 6.24% and has advanced 33 basis points this month, the biggest jump since April 2018, amid heavy debt supply and higher oil prices.