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Private banks make largest single-day govt bond purchase in 7 years

Indian private sector banks recently orchestrated the most substantial single-session acquisition of government bonds in seven years, marking a significant shift in the country’s financial landscape.

Key Purchase Details

  • Private sector banks collectively purchased government bonds totaling a net value of 83.43 billion rupees ($1 billion) in a single session.
  • This transaction represents the largest such purchase since November 15, 2016, according to data from the Clearing Corp of India.
  • The November buying spree surpassed 200 billion rupees, rebounding from net sales of 101 billion rupees in October.

Corporate Involvement

  • Traders speculate that a major corporate entity was responsible for a substantial portion of the investment, possibly around 50 billion rupees, facilitated through a private sector bank.

Banks’ Strategy and Motivation

  • Private banks, while engaging in purchases on behalf of clients, have also been increasing acquisitions for their own portfolios.
  • The motivation behind this surge lies in the significant share of maturing papers held by these banks, necessitating strategic deployment of funds.
  • A senior treasury official notes that nearly 1.7 trillion rupees are expected to flow in over the next month as certain government papers mature.

Investment Deployment

  • The influx of funds is predominantly being reinvested in liquid papers, with a focus on the five-year and benchmark 10-year government bonds.

Macroeconomic Factors

  • Improving macroeconomic conditions in India are contributing to the heightened bond-buying activity.
  • The recent weakening of U.S. data and a subsequent decline in treasury yields, signaling a potential peak in the rate cycle, have influenced this trend.

Market Response to Global Developments

  • Alok Singh, the group treasury head at CSB Bank, highlights that the 10-year U.S. yield has dropped over 55 basis points in November, impacting market dynamics and encouraging increased trading activity among private banks.

Central Bank Influence

  • The diminished expectations of debt sales from the central bank (Reserve Bank of India – RBI) have positively impacted buying sentiment.
  • The RBI did not sell bonds in the secondary market for the week ending November 10, following 185 billion rupees of sales in the preceding 10 weeks.

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