India's 10-year bonds turn top performer in Asia following RBI's own 'Operation Twist'

With investment and consumption both weak in India, policy makers are trying to spur credit and lift growth from a six-year low. 'The relentless steepening of the yield curve is getting pacified by the RBI coming in and signaling 'I am here to support,'' said Lakshmi Iyer, chief investment officer for fixed income at Kotak Mahindra Asset Management Co. in Mumbai. 'This move brings some sort of sanity check.' The Reserve Bank of India in a statement late Thursday said it will buy 100 billion rupees of the 2029 debt and sell an equal amount of notes maturing next year in an auction on Monday. The concept is similar to Operation Twist used by the Fed in 2011-2012 in an effort to cheapen long-term borrowing and spur bank lending. The Fed then swapped short-term Treasury securities for longer-term government debt, which reduced the gap between two- and 10-year yields. In India, the term premia — difference between the benchmark 10-year yield and the RBI's policy rate — is at 160 basis points. That's higher than the typical spread of less than 100 basis points. The steepening of the curve in the longer end reflects concerns about the government adding to record borrowing as it gets ready to prime the economy. The slowdown has reinforced doubts about the administration meeting its budget aim of 3.3% of GDP this fiscal year. 'The RBI should increase the intensity of its Operation Twist via more vigorous switches of government bonds focused on securities in the tenure of 7-10 year plus,' said Madhavi Arora, economist at Edelweiss Securities Ltd. Future operations will depend on the success of Monday's auction, traders say. 'There's limited appetite for short-end bonds so the RBI will need to offer higher yields,' said Naveen Singh, head of fixed-income trading at ICICI Securities Primary Dealership. DailyhuntDisclaimer: This story is auto-aggregated by a computer program and has not been created or edited by Dailyhunt. Publisher: The Indian Expresshttps://www.magcloud.com/user/pernezkumens