RBI to the rescue with likely $15 billion bond-purchase to cap yields

Embattled investors in India’s government bond market are hoping to see the light at the end of the tunnel as the central bank comes to their rescue.

Benchmark yields have likely peaked for 2018 after hitting a three-year high this week, and the Reserve Bank of India’s debt purchases will keep a lid on them even as higher inflation boosts the odds of monetary tightening, according to a survey of traders and fund managers.


The RBI is likely to buy 1 trillion rupees ($15 billion) of securities in the current fiscal year, the survey showed, as authorities seek to cool yields and ensure a smooth passage for the government’s borrowing program. The first tranche is due Thursday.

“At current levels, two rate hikes are already in the price and I don’t see yields surging much,” said Badrish Kulhalli, head of fixed income at HDFC Standard Life Insurance Co. in Mumbai. The purchases would help cap yields and provide an exit to state-owned banks -- the biggest holders of sovereign debt -- and others with stuck positions, he said.