Playing as a small flying robot, you can fly around freely in a sidescrolling view and you can pick up objects with a little tractor beam attached to your bottom. We are all watching to find out how much, how long it would sell and at what level it would buy gilts,” said a trader.Unmechanical: Extended is a game where you can only do two things. “We don’t know what’s playing in RBI’s mind.
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This two-track money market rate of dual reverse repos - one lower and fixed, the other variable and higher - has complicated market operations and made the guessing game tougher for traders. Unlike the fixed reverse repo, the operating rate today is variable reverse repo, a floating discretionary rate RBI uses to absorb liquidity from banks - with mutual funds, insurers having no access to the RBI window. Perhaps, all this would eventually lead to RBI raising the reverse repo rate which stands untouched at 3.35%,” said a dealer.
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The term premium is the difference between the repo rate (the 4% rate at which one can borrow from RBI) and GOI 10-year yield (which has crossed 6.5%) - an opportunity for a bank to borrow from RBI or from the market and buy GOI bond to lock in a spread of 2.5%. The term premium in the market is currently 2.5%, which is one of the highest I have seen," said a banker. Currently, the spread is around 4.8, which is good enough. "May be, RBI does not want the gap between GoI bond yields and US treasury bills to narrow, so that FPI inflows return. Also, the first two quarters were different for the local bond market wherein RBI intervened by buying bonds through G-SAP 1.0 and 2.0 programmes," said an analyst. "Besides signals of possible hikes by the Fed this year, there is little or no FPI inflow into GoI bonds amid high inflation and fiscal slippage forecast. They start guessing what could be next level when RBI may intervene (i.e, buy bonds to check the rise in bond yields)," said a bond dealer.Ī slew of factors - from the possibility of a higher fiscal deficit to rate signals from the Fed, coupled with key information like US payroll data, to actual flows - influence bond prices. "If traders get a sense that RBI is fine with yields going up, they begin to price in that. But this time around, there was no bond buying by the RBI even when yields touched 6.47/6.48%. Last year, the RBI, which had apparently tried to protect the yield at around 6%, had intervened (by buying bonds) when the yield rose to 6.25%. The yield (or, the return to an investor) on the 10-year GoI bond, which serves as a benchmark, has increased from 6.30% to 6.52/53% over the past two months.
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According to a senior official of a large bond house, even as RBI maintains a dovish stance, it is doing what seems like a targeted selling as it typically does not intervene continuously. Probably, that has started," said the CEO of a large bank. So why not keep taking out ₹5,000-10,000-crore per month, and track market reaction each week. "Best, as I can judge, RBI does realise that taking out the durable liquidity is a long-drawn-out process - it can take a few years. Mumbai: In a move that has baffled the money market, the RBI has, over the past few fortnights, carried out a string of innocuous operations which among other things may hint at the start of a long journey to slowly mop up the extra liquidity that has been sloshing around.Ī creeping, yet sustained, sale of bonds by RBI - about ₹2,000 crore in every 10 to 15 days - has become the talk of the market, leaving banks, bond houses and financial institutions like insurers and mutual funds guessing about what the central bank is trying to achieve, what it could do next: Is it a signal that the monetary authority is comfortable with a higher bond yield (which eventually paves the way for higher interest rates in the economy)? Do rising yields mirror a hardening inflation? Is it a hint to the government that the price of higher fiscal deficit would be higher yield? Or, does it mark the beginning of a complex process to lower the durable liquidity in the system?