Indian Private Banks Record Largest Single-day Govt Bond Purchase In 7-yrs

Indian private sector banks have made the largest single-day purchase of government bonds in the past seven years on Friday. It also includes a big investment on behalf of a corporate, traders said on the condition of anonymity.

These private sector banks have purchased the bonds worth a net of 83.43 billion rupees (USD 1 billion), the biggest such purchase since 15 November 2016, according to data from Clearing Corp of India.

This has pushed the overall buying to more than 200 billion rupees for November, after net sales of 101 billion rupees in October.

A large corporate has likely bought approximately 50 billion rupees of the benchmark paper through a private sector bank, a trader said on the condition of anonymity.

A senior treasury official at a private bank has said that though the friday's purchase consists of buying for a constituent client, the private banks have been increasing purchases for their own books.

He added that banks hold a chunky share of maturing papers and this money needs to be deployed.

Inflows of about Rs 1.7 trillion are due over the next one month as the 8.83 per cent 2023, 4.56 per cent 2023 and 7.68 per cent 2023 papers are maturing.

Another treasury official said that the most of the money is re-invested in liquid papers which includes the five-year and the benchmark 10-year paper.

Improvement in the macroeconomic conditions are also backing the pick-up in bond buying.

Alok Singh, group treasury head at CSB Bank has said that the U.S. fed data has started to show the signs of weakening and treasury yields have come down, with indications that the rate cycle has peaked.

“This has further led to an increase in terms of trading activity from the private banks,” Singh added.

The 10-year U.S. yield has dropped over 55 basis points(bps) in the month of November to nearly 4.45 per cent.

Traders also mentioned that the expectations of debt sales from the central bank have almost diminished since liquidity still remains tight, improving buying sentiment.

The RBI has not sold bonds in the secondary market for the week ended 10 November, after Rs 185 billion of sales in the preceding 10 weeks.