The government said on Thursday it will buy back bonds worth $6.4 billion, a move which dealers said will help ease tight liquidity conditions to some extent.

Traders have been expecting liquidity infusion steps after state-run Coal India’s up to $3.5 billion initial public (IPO) offer drained funds from the banking system and lack of government spending added to tight liquidity.The Reserve Bank of India (RBI) will repurchase the bonds through reverse auction and secondary market purchases.

The central bank shortly after announced it will repurchase the three securities for an aggregate amount of Rs 12,000 crore via auction on Monday.

“I expect a mild rally in the market tomorrow. Will have to wait and watch if people are willing to sell these bonds, but the intent is liquidity positive,” said Manish Wadhawan, director and head of rates at HSBC India in Mumbai.

Traders expect the benchmark 10-year bond yield to rally by around 5-10 basis points when the market opens on Friday.

The benchmark 10-year bond yield ended down 1 basis point at 8.13 per cent on Thursday, after touching 8.18 per cent during trade, its highest since October 3, 2008. to do, needs to be watched,”

“This is a clear signal that the central bank wants to infuse liquidity in the market, which is positive,” said Ashutosh Khajuria, head of treasury at IDBI Bank in Mumbai.

The government had offered to buy back bonds worth Rs 20,000 crore in June, when there was a cash crunch due to outflows towards third generation (3G) and broadband spectrum auction payments.

However, the buyback was only partly successful as the market demanded sharply higher-than-market prices for the papers.

Traders said the success of the buyback this time would depend on market conditions on the day of repurchase.

source: Business-Standard

Tags: government bonds, what are bonds

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