India bonds climb as RBI resumes Operation Twist to cool yields

… fund manager at Quantum Asset Management Ltd. in Mumbai. “RBI needs to be more frequent in their OMO announcements, given the huge supply.
By Subhadip Sircar

India’s central bank will resume its Federal Reserve-style Operation Twist after weak demand at two successive auctions and inflation concerns drove up yields. Sovereign bonds climbed.

The Reserve Bank of India will purchase 100 billion rupees ($1.3 billion) of bonds and sell an equivalent amount of shorter debt on Aug. 27 and Sept. 3, respectively, it said in a statement. The last such operation was held on July 2.

Yields on 5.79% 2030 bonds slid seven basis points to 6.16% after the announcement. The new benchmark 5.77% 2030 debt was down four basis points after surging over 30 basis points in the past three weeks.

“This was expected given the panic response that saw yields surging in the last two sessions after Friday’s auction,” said Pankaj Pathak, debt fund manager at Quantum Asset Management Ltd. in Mumbai. “RBI needs to be more frequent in their OMO announcements, given the huge supply.”


Indian government bonds have been under pressure after the RBI left rates unchanged at its August meeting and refrained from announcing measures to support a market facing a record 12 trillion rupees of debt supply this fiscal year. The latest minutes showed that the central bank’s rate-setting panel had turned less dovish with higher inflation.

Market strains became more evident after a sale of benchmark 10-year debt had to be rescued by underwriters on Aug. 14. The Aug. 21 auction of longer bonds saw cutoff yields that were higher than expected, leaving traders wondering whether the authority was signaling that yields may head higher.

The RBI on Tuesday said it would buy bonds maturing in 2024, 2027, 2030, 2032 while selling 182-day treasury bills on Aug. 27.

Investment Strategy In Government Bonds

It is hard to say how much investing in government bonds will help your pension portfolio, but there are some unique benefits for those willing to take their time. Those who invest in individual bonds can often choose between 1 – 2 bond funds or buying in a broker account. If this seems too complex to broaden your investment portfolio, or if you don’t want to use a financial adviser as a guide, there are two other ways to add fixed-income instruments to your investment. Buying bonds in the form of a government bond fund or private equity fund can be a headache, and consulting a qualified asset manager can help you choose the best approach to take now. [Sources: 7, 8, 9, 18]

Like shares, government bonds can be held and sold to other traders on the market. Investors can also buy government bonds on the secondary market from banks and brokers who buy them directly from the government or from a bank or broker in exchange for government bonds. [Sources: 10, 13]

If you need short-term investment grade bonds, you can buy ETFs in the same way as government bonds. You can reduce your risk by combining a government bond portfolio with a portfolio of other high-quality bonds, such as equities or bonds from other countries. [Sources: 7, 17]

If your main strategic objective when taking out bonds is diversification, you can choose an active or passive bond selection strategy. Investors seeking capital preservation and income diversification can simply buy bonds and hold them until maturity. This approach has the potential to lead to long-term investment in government bonds and other high-quality bonds. [Sources: 12, 16]

Since bonds with longer maturities typically have higher interest rates, this strategy involves investing in long-term bonds. Treasury bonds carry the risk that interest rates will rise over time, reducing the value of the bond. [Sources: 1, 11]

For example, if you want to buy a home in 15 years, you can schedule your Treasury bond investments to match the time you expect to need the money. If you choose to capitalize on higher returns by investing more in government bonds, your position as a Treasury bond could be diminished in the future when yields return to normal. This strategy could be considered first for conservative investors – investors who are unsure how to invest but want a predictable plan for working until retirement age. [Sources: 9, 10]

Investors looking for the traditional benefits of bonds can also choose a passive investing strategy that seeks to match the performance of bond indices. This includes buying and holding bonds until maturity or investing in bond funds or portfolios that track bond indices. Diversification is key – if you are only interested in Treasury bonds, you should diversify as much as possible to stay fully invested. An iShares Treasury Bond ETF (ETF) can help investors maintain their exposure to the Treasury bond market. [Sources: 2, 8, 16]

While a passive strategy involves investing in selected bonds, an active strategy requires an individual bond selection to track the performance of the index. [Sources: 12]

Investors looking for a safe investment with high returns would need a minimum investment of £1,000 in return for flexibility. Corporate bonds can be bought on the Retail Bond Platform on the London Stock Exchange. You don’t have to access your money until the bond matures, and the fund is within the FDIC’s $250,000 limit. [Sources: 3, 15]

They can buy Treasury bonds managed by the Federal Reserve Bank of New York, the US Treasury or the Treasury Department of the Secretary of State. [Sources: 1]

For most retail investors, the best way to invest in these bonds is to buy TreasuryDirect bonds or ETF bond funds. While you can buy government bonds directly from the US government, most bonds must be purchased through the Federal Reserve Bank of New York or the Secretary of State’s Treasury. Because government bonds are better valued and represent a safer and safer investment, traders who prefer riskier investment strategies may prefer high-yield bonds to government bonds. Investors who want to diversify their bond holdings may need to take a little more risk to get involved, but forget higher returns. [Sources: 0, 4, 6, 15]

This type of bond is well suited – for purchases – and – holding strategies, because it minimizes the risk associated with embedded options that are included in the bond issue contract and remain with the bonds for life. [Sources: 14]

Buying government bonds typically carries little or no default risk, but when the bond is traded on the open market, it can lose value when interest rates rise above the face value of the bonds. When buying individual bonds, investors want to manage their interest rate risk by diversifying the maturities of their bonds. This strategy involves an investor buying longer-dated bonds rather than medium-term bonds, a financial asset invested in long-term government bonds that are limited by the government’s bond issue contract and its maturity date. We begin by looking at two types of government bonds: sovereign debt and sovereign equity. [Sources: 3, 5, 7, 18]





















Foreign Demand For Treasury Debt Surges

… the currency risk because the cost to hedge it is so acute,” said Rick Rieder, the global chief investment officer for fixed-income at BlackRock Inc.

Foreign holdings of U.S. Treasury debt jumped in August while concerns about global economic growth intensified and the amount of negative-yielding debt around the world rose.

Overseas investors held a record $6.86 trillion of U.S. government debt at the end of that month, a 3.4% increase from the month before, according to the most recent Treasury Department data, disclosed late Wednesday. Foreign holdings had their largest percentage increase in more than nine years, according to the data.

The surge in purchases occurred as investors became increasingly concerned about intensifying trade tensions between the U.S. and China and after the Federal Reserve cut interest rates for the first time since the financial crisis.

Yields on Treasury debt have remained significantly higher in the U.S. than in Germany and other large European economies, where government bond yields have fallen below zero to record lows. The Fed raised interest rates nine times in recent years before cutting them twice this year. The ECB has held interest rates below zero since 2014.

Foreign investment in U.S. debt is growing at a much faster pace this year than last, even though it has remained very expensive for investors with other currencies to hedge the risk that the dollar could lose value. The change reflects a shift in investor sentiment due to the persistent strength of the dollar versus the euro, yen and other major currencies.

That strength has given investors confidence to hold Treasurys in dollars without using hedges to protect against a decline in the U.S. currency, analysts said.

“There’s definitely a willingness to take the currency risk because the cost to hedge it is so acute,” said Rick Rieder, the global chief investment officer for fixed-income at BlackRock Inc.

Treasurys and other U.S. bonds are attractive overseas because of a global shortage of “quality assets with some yield to them,” Mr. Rieder said.

U.S. government bond prices fell Thursday amid optimism about a proposed Brexit deal. The benchmark 10-year Treasury yield increased for the fifth time in the past six sessions, settling at 1.757% compared with 1.750% Wednesday. The yield had climbed as high as 1.797%. Bond yields rise when their prices fall.

The WSJ Dollar Index declined 0.4% Thursday to a recent 90.79, pushed lower by a gain in the euro amid uncertainty about the prospects for a proposed Brexit deal. The euro rose 0.5% to a recent $1.1126 while the British pound reversed earlier gains, declining 0.2% to $1.2812 after concerns rose that Parliament could reject the plan, which was approved Thursday by the European Union.

Write to Daniel Kruger at

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TREASURIES-Worst manufacturing data in a decade drives yields lower

Forecasts that the Fed will cut rates at its October meeting rose to 62.5% on Tuesday from 39.6% the previous day according to CME Group’s …

(Updates yields, adds analyst quotes)

By Kate Duguid

NEW YORK, Oct 1 (Reuters) – U.S. Treasury yields on Tuesday afternoon hovered near session lows hit after the Institute for Supply Management (ISM) reported its U.S. manufacturing activity index fell in September to its lowest level in a decade.

The ISM said in the morning that its index of national factory activity fell to 47.8, the lowest reading since June 2009, as trade tensions between China and the United States kept straining business conditions. A reading below 50 signals the domestic factory sector is contracting.

“This raises the prospects of prolonged sub-par economic growth. You’re not in recession territory, but you’re definitely headed in that direction,” said Stan Shipley, macro research analyst at Evercore ISI.

The two-year yield fell to a three-week low, last down 6.4 basis points to 1.558%. The two-year yield is a proxy for investor expectations of Federal Reserve interest-rate policy. Forecasts that the Fed will cut rates at its October meeting rose to 62.5% on Tuesday from 39.6% the previous day according to CME Group’s FedWatch tool.

The benchmark 10-year yield was down 2.2 basis points to 1.649%, falling slower than the two-year yield and as a consequence, steepening the yield curve to 9.1 basis points, the highest in two weeks. The spread between the two- and 10-year yields was 4.1 basis points at Monday’s close.

Investors will now focus on labor market data with the ADP private sector payrolls report due on Wednesday and the government’s nonfarm payrolls report on Friday.

“If broader cracks in the labor market begin to emerge, look for (10-year yields) to retest 1.50% in short order with the 12-month low of 1.43% a subsequent target if the rally extends beyond there,” wrote Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.

Treasury yields had been elevated prior to the manufacturing data. They were driven higher after Japanese government bond (JGB) prices slumped across the board on Tuesday after a 10-year debt auction received weak investor demand, with Japan’s key 10-year futures contract posting the biggest daily fall in three years.

“We dissected the reasons why the sovereign yield auction in Japan was so poor. And the story you have there could happen here too. Low yields are not attractive for investors. This is going to be an increasingly important issue here as our deficits continue to go higher and we need bigger and bigger auctions,” said Shipley. (Reporting by Kate Duguid; Editing by Catherine Evans, Nick Zieminski and David Gregorio)

Berkshire taps Japan’s hunger for yields with $4bn bond debut

On top of Berkshire’s offering, Japanese companies issued a one-day record of 1.2 trillion yen in bonds on Friday alone. SoftBank Group, Nippon Steel …

TOKYO/NEW YORK — Warren Buffett’s Berkshire Hathaway headlined a record day in Japan’s bond market Friday by setting the terms on a 430 billion yen ($4 billion) offering, the biggest yen-denominated issue ever by a foreign multinational.

The U.S. investment group is selling five-, seven-, 10-, 15-, 20- and 30-year bonds.

The biggest chunk, 146.5 billion yen in 10-year debt, carries a 0.44% coupon — an attractive yield at a time when Japan’s benchmark long-term interest rate languishes below zero.

Banks, insurers, asset managers and other investors flocked to Berkshire’s offering, which falls under a global yen bond heading that allows foreign buyers to participate. Debt offerings under this framework have been growing gradually, with such big names as Apple, Starbucks, and Procter & Gamble joining in, and both Wall Street and Japanese financial institutions are pitching bond floats.

The success of the record debt sale could embolden other multinationals to raise capital in Japan’s bond market, where most yen-denominated offerings by foreign issuers have been small.

Berkshire’s AA issuer rating from S&P Global Ratings puts it slightly above the AA- of Japanese blue chip Toyota Motor.

The offering helps address a longstanding issue with Japan’s debt market: a narrow lineup of issuers. Only about 400 Japanese companies have floated bonds, according to Daiwa Securities — a fraction of the more than 2,000 listed on the first section of the Tokyo Stock Exchange. And just a handful of these, such as SoftBank Group, regularly carry out big offerings.

This is a problem for investors — particularly institutions with large sums of money to manage — that want to buy bonds but would prefer to avoid putting too many eggs in too few baskets. The Berkshire float gives them an opportunity to diversify into highly rated debt.

On top of Berkshire’s offering, Japanese companies issued a one-day record of 1.2 trillion yen in bonds on Friday alone. SoftBank Group, Nippon Steel and developer Mitsui Fudosan were among those participating in the bonanza, which featured diverse offerings including subordinated debt aimed at retail investors as well as green bonds.

“The market didn’t have any trouble digesting them — if anything, they were gone as soon as they were issued,” a bond dealer said.

This was just the most active day in a longer debt market boom. Long-term interest rates have been mired in negative territory for half a year, with monetary easing abroad exacerbating the problem. The benchmark yield on 10-year Japanese government bonds stood at minus 0.245% on Friday, nearing the record low of minus 0.3% set in July 2016.

This is driving individual and institutional investors alike to seek out yield elsewhere, while businesses seize the opportunity to borrow for cheap.

Japan still has many investors that steer clear of the slightest whiff of default risk. But this is starting to change amid the current unprecedented yield drought. The Government Pension Investment Fund’s move last year to relax its investing standards to allow for purchases of high-yield debt has also encouraged the public to do the same.

Businesses are also leveraging growing interest in environmental, social and governance investing. Japanese issuance of green bonds surged 140% to 530 billion yen in 2018, and nearly 300 billion yen have been floated so far this year.