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.

Find More News Related to Banking