Government to buy back bonds worth Rs.15,000 crore

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The yield on the government’s 10-year benchmark bond closed at 8.7358% on Thursday, against its previous close of 8.717%.

Mumbai: The government will be buying back Rs.15,000 crore worth of bonds maturing between May and February 2015 by utilizing “its surplus cash balances”, the Reserve Bank of India said in a statement.

The repurchase, on 18 March, “is purely ad hoc in nature”, the central bank said.

This is not an open market operation, which the central bank conducts to manage liquidity in the system. This is not a “debt switch” either, in which the government had earlier proposed to buy bonds maturing in the short-term and replace it with longer period debt.

“These bonds are maturing in a few months, anyway the government will have to pay. They most probably want to utilize their idle cash now and make the redemption pressure less in the next fiscal,” said Devendra Dash, a senior bond dealer at DCB Bank Ltd.

It will add to the liquidity in the system and be positive for the bond market, he said.

Neither the RBI, nor the government discloses exactly how much of surplus cash the government has parked with the central bank.

The yield on the government’s 10-year benchmark bond closed at 8.7358% on Thursday, against its previous close of 8.717%.