The Reserve Bank of India announced a plan to sell 1 trillion rupees of government bonds, or about 10.5 billion dollars, to drain excess liquidity from the banking system. It is the RBI's most aggressive measure to date, sending Indian government bonds lower and yields higher. The bond with a 6.94% coupon maturing in 2036 rose 7 basis points to 7.09%, while the bond with a 6.36% coupon maturing in 2031 jumped 16 basis points to 6.78%, after Indian markets reopened on Tuesday. The bond sale will be conducted in three rounds, with the first set for September 17, when the central bank will sell bonds with about 3 to 6 years of remaining maturity. Pressure is also building from the Indian central government's borrowing plan through nearly 8 trillion rupees of bond issuance over the next six months, compounded by high oil prices and August inflation that moved closer to the upper end of the 2-6% target range. Citigroup expects the RBI may raise interest rates by a total of 50 to 75 basis points, with the hiking cycle possibly beginning as early as next month. VRC Reddy, head of treasury at Karur Vysya Bank, said 5-year bonds have been particularly hard hit and expects India's yield curve to steepen, with the spread between 5-year and 10-year bond yields likely holding at around 20 to 30 basis points.
Citigroup Inc.Citigroup is cited only for its forecast that the RBI may hike rates 50-75bp; no company-specific development.
RBI's 1 trillion rupee bond sale to drain liquidity pushes Indian government bond yields higher.
