The Reserve Bank of India (RBI) will again have a tough choice at Friday’s bond sale: Whether to ask underwriters to rescue the sale or allow higher yields. In the last auction, the Central Bank has plans to sell 300 billion rupees ($4 billion) of bonds which include 180 billion rupees of benchmark 10-year securities. Sovereign bonds opened lower ahead of the sale, with the 10-year yield rising two basis points to 6.01 per cent. The RBI has a huge task managing the federal government’s record borrowing program without wading into debt monetization like Indonesia.
On Thursday, the RBI chose not to accept any bonds at a 100 billion rupee auction, which traders said was an indication that the central bank didn’t want to signal it will accept yields rising much further. After rejecting the bids, the central bank quickly announced an operation twist for 100 billion rupees for October 1.
Traders said the central bank’s actions might prove to be inadequate to support bond prices, on Thursday. Today Naveen Singh, head of fixed-income trading at ICICI Securities Primary Dealership Ltd. in Mumbai has expected muted demand in the auction. Underwriters have had to rescue three of the last six auctions as investors demanded higher yields amid supply worries.