Bond yields nose dive after Operation twist announcement

Trend to aid monetary transmission

Published - December 20, 2019 10:23 pm IST - Mumbai

Yields on government bonds dropped sharply on Friday after the Reserve Bank of India (RBI) announced purchasing of long-term securities and selling of short tenure ones simultaneously through open market operations.

On Friday, the yield on 10-year government benchmark bond dropped 15 bps on Friday to close at 6.60% — the biggest fall since October 9, thus narrowing the gap with the repo rate. The yield on 2020 paper jumped 5 bps.

In fact, the intention behind this exercise — termed Operation Twist — is to manage the yields. This will address the issue of liquidity. Liquidity was abundant at the shorter end but not so much at the longer end. But by making liquidity available at the long end, the move will help in monetary transmission, bankers said.

“Today, Operation Twist turned the market sentiment dramatically. RBI’s action led to easing of rates of long term 10-year bond yield by 2%,” Shrikant Chouhan, senior vice-president, equity technical research, Kotak Securities.

“Falling long-term bond yields also aid rate-sensitive sectors like auto and real estate, which ended in positive territory,” he added. The central bank said it will buy ₹10,000 crore of 6.45% government bonds maturing in 2029 and simultaneously sell ₹10,000 crore of short-term bonds maturing in 2020 on Monday.

Operation Twist was undertaken by the U.S. Federal Reserve in 2011-12 to make long term borrowing cheaper.

0 / 0
Sign in to unlock member-only benefits!
  • Access 10 free stories every month
  • Save stories to read later
  • Access to comment on every story
  • Sign-up/manage your newsletter subscriptions with a single click
  • Get notified by email for early access to discounts & offers on our products
Sign in


Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.

We have migrated to a new commenting platform. If you are already a registered user of The Hindu and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.