Tag: government bonds

PM launches scheme for retail participation in govt securities

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Prime Minister Narendra Modi on Friday launched two customer-centric initiatives of the RBI with a view to provide opportunities to retail investors to participate in the government securities market and contribute towards nation-building.

The two initiatives of RBI — retail direct scheme and integrated ombudsman scheme — will also promote financial inclusion, he said.

The Prime Minister, while launching two innovative, customer-centric initiatives, said these schemes would expand the scope for investment and improve customer grievance redressal mechanism.

The retail direct scheme, he said, would provide access to small investors to earn assured returns by investing in securities and it will also help the government to garner funds for nation-building.

Ombudsman Scheme

On the Reserve Bank-Integrated Ombudsman Scheme (RB-IOS), he said, it is aimed at further improving the grievance redress mechanism for resolving customer complaints against entities regulated by the central bank.

With the launch of the scheme, he said, “One Nation-One Ombudsman” has become a reality. The RBI Retail Direct Scheme is aimed at enhancing access to the government securities market for retail investors. It offers retail investors a new avenue for directly investing in the securities issued by the centre and the state governments.

The investors will be able to easily open and maintain their government securities accounts online with the RBI for free. Leveraging technological advancements, the scheme offers a portal avenue to invest in central government securities, treasury bills, state development loans and sovereign gold bonds.

The scheme places India in a list of select few countries offering such a facility.

This scheme (RB-IOS) will do away with the jurisdictional limitations as well as limited grounds for complaints. RBI will provide a single reference point for the customers to submit documents, track status of complaints filed and provide feedback. The complaints that are not covered under the ombudsman scheme will continued to be attended to by the Customer Education and Protection Cells (CEPCs) which are located in the 30 regional offices of RBI.

With increased awareness, digital penetration and financial inclusion there were steep rise in the number of complaints against various regulated entities. The number of complaints shot up from 1.64 lakh in 2017-18 to 3.30 lakh complaints in 2019-20, as per RBI data.

The RBI in the recent past took several steps to strengthen the customer grievance redressal system of regulated entities including issuance of guidelines for strengthening of Internal Ombudsmen, graded regulatory and supervisory actions, and launch of Complaints Management System (CMS) in 2019.

The RBI after review decided to integrate the three ombudsman schemes into one and also simplified the scheme by covering all complaints involving deficiency in service by centralising the receipt and initial processing of complaints to enhance process efficiency.

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The schemes are administered through 22 offices of RBI Ombudsman (ORBIOs). Complaints that do not fall within the ambit of the Ombudsman mechanism are handled by the Consumer Education and Protection Cells (CEPCs) functioning at 30 regional offices of RBI.

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Rupee, government bonds gain as mkts cheer sharp decline in CPI inflation, BFSI News, ET BFSI

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NEW DELHI: The rupee gained against the US dollar in early trade Wednesday because of a sharp decline in Consumer Price Index-based inflation for September and as global crude oil prices retreated from multi-year highs, dealers said.

The domestic currency on Wednesday opened at 75.3150 to a dollar, stronger than 75.5060 per dollar on Tuesday. At 10:20 hours (IST), the local unit traded at 75.2675 per dollar.

Data released after trading hours on Tuesday showed that India’s headline retail inflation declined sharply to 4.35 per cent in September versus 5.30 per cent in August.

While domestic retail inflation has been softening over the past couple of months, a recent jump in global crude oil prices had led to fears of fresh upside risks to inflation.

Crude oil prices have climbed to multi-year highs since last week due to concerns of global demand outstripping supply.

Comfortingly for local currency traders, Brent crude futures declined on Tuesday, with the contract for December delivery shedding $0.23 to close at $83.42 per barrel.

“There is a pull-back in crude oil prices which is providing support but the larger positive is the sharp decline in inflation,” a dealer with a large private bank said on condition of anonymity.

“After the kind of depreciation we have seen this month, there is also some dollar selling by foreign banks for exporters. Because they want to lock in a good level. 75.50/$1 was breached yesterday but it is unlikely that RBI will let it go to 76/$1 very soon,” he said.

The rupee has shed around 1.5 per cent against the US dollar so far this month.

Government bonds also gained with yield on the 10-year benchmark 6.10%, 2031 paper last at 6.31%, two basis points lower than previous close, as traders welcomed the inflation print for September.

Bond prices and yields move inversely.

With the fall in headline retail inflation last month providing breathing room to the RBI, bond dealers believe that the central bank may not be in a rush to commence raising interest rates.

“After the last policy statement (on Friday), there was a lot of talk about how the reverse repo rate will be raised in December, I think RBI could stretch it out till February, given that inflation so far is behaving itself. The only joker in the pack is oil prices,” a dealer with a large foreign bank said on condition of anonymity.



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Pivotal week for Indian traders may pave way for foreign inflows

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Indian investors face a crucial week with announcements due on a key index review for the nation’s bonds and also on the government’s borrowing plan for the next six months.

FTSE Russell will announce its annual review for equity and fixed-income markets on Thursday, with Indian debt already on a watchlist for potential upgrading. While the government has yet to say when it will announce its next borrowing program, officials from the central bank and finance ministry will decide the plan on Monday, people familiar have said.

“This week will lay the ground for the second half of the year, and could be an inflection point for the markets,” said Madhavi Arora, lead economist at Emkay Global Financial Services Ltd. in Mumbai. “Bond index inclusion could be a game changer for India, luring massive foreign inflows.”

G-secs react to the beginning of Fed taper

The rupee has declined about 1 per cent this month so far, and is among Asia’s worst performers, as the Fed’s hawkish pivot strengthened the dollar, even as the Reserve Bank of India has maintained its easy stance. A potential inclusion by FTSE Russell may pave the way for big foreign inflows and burnish the rupee and bonds.

The rupee appears poised for more near-term losses against the greenback given the currency pair’s slow stochastics, a momentum indicator, signalling it is still not in the oversold territory against the dollar. However, any further losses may be limited given initial rupee support around 74 level.

Bond markets await RBI move

Indian bonds are already heading for the biggest monthly gain since April, and may get a further boost if the government decides to cut back borrowing for the second half of the fiscal year as revenue improves.

Index addition looks more imminent after a finance ministry official earlier this month said the nation has completed most of the work required to be a part of the global benchmarks

India’s inclusion in the global bond indexes, expected by early 2022, may attract as much as $250 billion of inflows in the next decade, according to Morgan Stanley, which sees the 10-year bond yields to ease to 5.85 per cent in 2022 from 6.18 per cent on Friday. The move may lead to the rupee gaining by more than 1.5 per cent to 72.50 per dollar, from Friday’s close, according to HDFC Securities Ltd.

Indian bonds are also under review for inclusion by JPMorgan Chase & Co., which typically assesses its index this month, while Bloomberg Index Services Ltd. last week said there is currently no estimated timeline in place for India’s inclusion in the Bloomberg Global Aggregate Index.

An index inclusion “could be a big trigger, leading to rapid appreciation in the rupee,” said Dilip Parmar, analyst at HDFC Securities. “The central bank may not be too aggressive in buying or selling dollars, and may give time for the rupee to adjust to the market.”

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RBI to conduct Rs 20,000 crore bond purchase on July 8, BFSI News, ET BFSI

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Mumbai: The Reserve Bank of India (RBI) will conduct the open market purchase of government bonds worth Rs 20,000 crore under the G-sec Acquisition Programme (G-SAP 2.0) on July 8.

The RBI said in a statement that it reserves the right to decide on quantum of purchase of individual securities, accept bids for less than the aggregate amount, purchase marginally higher/lower than the aggregate amount due to rounding off and accept or reject any or all the bids either wholly or partially without assigning any reasons.

On July 4, RBI Governor Shaktikanta Das had announced that the central bank will conduct the open market purchase of government securities of Rs 1.2 lakh crore under the G-SAP 2.0 in Q2 of the current financial year to support the market.

The next purchase under G-SAP 2.0 will be conducted on July 22 for Rs 20,000 crore. The government securities to be purchased in the auction will be communicated in due course, said the RBI.

The government raises money from the market to fund its fiscal deficit through dated securities and treasury bills.

The RBI has said it remains committed to use all instruments at its command to revive the economy by maintaining congenial financial conditions, mitigate the impact of Covid-19 and restore the economy to a path of sustainable growth while preserving macroeconomic and financial stability.



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10-year G-Sec auction sees devolvement

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Government securities (G-Secs) prices rose on Friday despite the Reserve Bank of India (RBI) devolving the 10-year benchmark G-Sec on primary dealers (PDs) at the weekly auction.

Market participants attributed this to the aforementioned security being among the six G-Secs RBI will be buying under the third tranche of open market purchase of G-Secs under the G-Sec Acquisition Programme (G-SAP 1.0).

Though the cut-off price at the auction of the 10-year G-Sec came in at ₹98.97 — about 19 paise higher than previous closing price (of ₹98.7850) — bond dealers say many of the bids would have been below Thursday’s closing price, leading to devolvement of the paper PDs.

PDs, who underwrite G-Sec auctions, had to pick up ₹9975.763 crore worth of this paper out of the total notified amount of ₹14,000 crore.

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said the central bank has kept the yield on the 10-year on a tight leash in view of the large Government borrowing programme amid the Covid-19 pandemic, while the market players want it to leave the yields to market forces.

Keeping yields in check

Irani observed that G-Sec prices did not fall despite devolvement of the 10-year G-Sec on PDs as market participants know that RBI will buy this security through G-SAP.

In the secondary market, the benchmark 10-year G-Sec coupon rate: 5.85 per cent) rose 9 paise to close at ₹98.875 (previous close ₹98.785), with the yield declining about a basis point to 6.0072 per cent (6.0199 per cent).

Bond yield and price are inversely related and move in opposite directions.

The auction of the other two G-Secs — 4.26 per cent GS 2023 and 6.76 per cent GS 2061 — sailed through.

Under G-SAP, RBI commits upfront to a specific amount of open market purchases of G-Secs with a view to enabling a stable and orderly evolution of the yield curve amidst comfortable liquidity conditions. According to State Bank of India’s economic research report “Ecowrap”, the G-SAP programme of the RBI has been largely successful in keeping the bond yields in check.

However, to make the impact more meaningful, RBI may consider shifting the focus on 7-8 year papers while announcing Open Market Operation/ G-SAP, etc., it added.

“This will smoothen the curve and also reduce upward pressure on benchmark yield. Additionally, RBI can also come up with a prior calendar of bucket-wise maturity for GSAP-2.0,” Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, said.

Furthermore, more purchases might be done in illiquid securities compared to liquid securities in each bucket. Accordingly, banks will be able to offload their HTM (held-to-maturity) stocks and buy liquid ones.

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G-Sec yields continue to rise

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The Government Securities (G-Sec) market continued to be spooked by a host of factors, including oversupply of G-Secs, rising US Treasury yields and oil prices.

Yield on the widely-traded 10-year benchmark G-Sec (carrying a coupon rate of 5.85 per cent) rose about 5 basis points to about 6.2290 per cent, with its price declining about 33 paise to ₹97.25 over the previous close.

Yield on the earlier 10-year benchmark G-Sec (carrying a coupon rate of 5.77 per cent) jumped about 8 basis points to about 6.3162 per cent, with its price dropping about 54 paise to ₹96.16 over the previous close.

The discomfort of the market players with the yields manifested in the form of them seeking higher yields at the auction of two G-Secs.

So, the Reserve Bank of India devolved about 66 per cent of the notified amount of ₹4,000 crore in the case of the three-year G-Sec on primary dealers (PDs). It also devolved about 19 per cent of the notified amount of ₹11,000 crore in the case of the 15-year G-Sec.

In the case of the auction of two other G-Secs, the Government exercised greenshoe option on the 13-year floating rate bond, mopping up ₹5,450 crore against the notified amount of ₹4,000 crore, and accepted partial bids aggregating ₹2,503.522 crore against the notified amount of ₹5,000 crore for the 30-year G-Sec.

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said: “We will be struggling with inflation as we go ahead because of increase in commodity prices. Additional liquidity infusion is leading to more inflation.

“…In the US also, yields are rising continuously. Across the world, central banks are saying “don’t worry, we will infuse liquidity, this and that”. But markets are not ready to believe. Markets are in correction mode only.”

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PDs suffer in yield war between RBI and bidders

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Government Securities (G-Sec) auctions are caught in a tug-of-war between bidders demanding higher yields and the Reserve Bank of India’s reluctance to concede that, leading to devolvement on primary dealers (PDs).

Of the four G-Sec auctions conducted since the Budget, only one (on February 11) was fully subscribed without PD support.

In the G-Sec auctions conducted since the Budget announcement, the RBI devolved G-Secs aggregating about ₹37,000 crore on PDs.

 

Borrowing target

Finance Minister Nirmala Sitharaman had announced in her Budget speech that the government would need to borrow another ₹80,000 crore in February-March and the gross borrowing from the market for FY22 would be around ₹12-lakh crore.

The market wants higher yields, but the central bank, which is the banker and debt manager to the government, wants to the keep the yields from rising as they have implications for the cost of government’s borrowing.

Rising G-Sec yields will have a ripple effect as the cost of borrowing of States and India Inc too will rise in sync.

Since January-end, the yield on the widely traded 10-year G-Sec (maturing in 2030 and carrying 5.77 per cent coupon rate) has increased by about 23 basis points to 6.1792 per cent, with its price declining by ₹1.59 to ₹97.1.

Referring to the devolvement of two G-Secs aggregating about ₹21,594 crore on PDs at Thursday’s auction, Marzban Irani, Chief Investment Officer – Fixed Income, LIC Mutual Fund, said: “The bids were on the higher side and the RBI wanted to give a signal that it was not comfortable at those yields. Hence, the auction got devolved.”

Market wants correction

Irani observed that the market wants the yields to correct. The yield curve across maturities such as 6 years, 7 years, 8 years, and 15 years has corrected but not the 10-year yield. Hence, the market wants the 10-year G-Sec yield to inch up, he added.

“The borrowing programme this year as well as next is on the higher side. Unless the yield curve gets corrected, there won’t be aggressive bidding at the auctions. The RBI will have to support via open market operations (OMOs) at regular intervals,” he said.

Hardening yields

Edelweiss Mutual Fund, in its latest bond market update, noted that G-Sec yields have hardened in anticipation of a mismatch in the demand-supply dynamics.

“The bond market was hoping that the RBI would guide the market with some sort of calendar for OMO bond purchase programme for the next year. However, the RBI has refrained from doing that.

“Perhaps they don’t want to pre-commit themselves at this point. However, the RBI said that the government’s borrowing programme will be concluded without any disruption. This is quite reassuring. However, the bond market is not convinced on this yet,” the report said.

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70 bps decline in price of 10-year G-Sec

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Price of the benchmark 10-year Government Security (G-Sec) declined by about 70 basis points, with its yield rising about 10 basis points, as two of the four G-Secs devolved on primary dealers (PDs) at the auction held on Thursday.

The central bank devolved about 97 per cent of the notified amount of ₹11,000 crore at the auction of the 2025 G-Sec (coupon rate: 5.15 per cent).

It also devolved about 99 per cent of the notified amount of ₹11,000 crore at the auction of the 2030 G-Sec (coupon rate: 5.85 per cent).

PDs’ bid to underwrite various amounts in G-Sec auctions at different commission rates. Market players say the RBI agreed to pay a relatively higher commission for PDs at Thursday’s auction, and the devolvement of the two aforementioned G-Secs on them should be seen in this context.

In the case of auction of the 2022 G-Sec (3.96 per cent), the RBI accepted a greenshoe amount of ₹145.052 crore over and above the notified amount of ₹2,000 crore.

In the case of auction of the 2061 G-Sec (new issuance), the RBI accepted partial amount of ₹3,501.335 crore against the notified amount of ₹7,000 crore.

“Devolvement on PDs and fatigue in the market (about over supply of G-Secs) are the main reasons why yields went up today,” said Marzban Irani, CIO-Fixed Income, LIC Mutual Fund.

Irani observed that yields may nudge up next week as PDs will start selling the G-Secs that devolved on them. The Bond market is closed on Friday on account of Chhatrapati Shivaji Maharaj Jayanti.

In the secondary market, price of the 10-year benchmark (2030/ 5.85 per cent coupon) G-Sec fell 73 paise to ₹97.94 over the previous close, with its yield going up about 10 basis points to 6.1318 per cent.

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