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

Indian private sector banks made the largest single-session purchase of government bonds in seven years on Friday, including a big investment on behalf of a corporate, traders said.

These banks bought bonds worth a net of 83.43 billion rupees ($1 billion), the biggest such purchase since Nov. 15, 2016, as per data from Clearing Corp of India. This pushed overall buying to above 200 billion rupees for November, after net sales of 101 billion rupees in October.

A large corporate likely bought around 50 billion rupees of the benchmark paper through a private sector bank, traders said.

"Though Friday's purchase consists of buying for a constituent client, private banks have been increasing purchases for their own books as they hold a chunky share of maturing papers, and this money needs to deployed," a senior treasury official at a private bank said.

Inflows of nearly 1.7 trillion rupees are due over the next one month as the 8.83% 2023, 4.56% 2023 and 7.68% 2023 papers mature. Most of the money is re-invested in liquid papers, including the five-year and the benchmark 10-year paper, another treasury official said. Improving macroeconomic conditions are also aiding the pick-up in bond buying.

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

This is also leading to an increase in trading activity from private banks, Singh said. The 10-year U.S. yield has dropped over 55 basis points in November to nearly 4.45%.

Traders also said that expectations of debt sales from the central bank have diminished as liquidity remains tight, improving buying sentiment. The RBI did not sell bonds in the secondary market for the week ended Nov. 10, after 185 billion rupees of sales in the preceding 10 weeks.

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