LTRO: Demand for India’s next repo issue may be less than blockbuster

India’s first long-term repo operation was a blowout. Investor’s interest in the second round may be relatively tame as they shy away from locking rates for a shorter tenor as borrowing rates are expected to fall further.

The Reserve Bank of India on Monday got bids worth 1.9 trillion rupees ($27 billion), eight times more than the 250 billion rupees it offered banks in three-year money. The second issuance on offer for a similar amount on Feb. 24 will have a one-year tenor.

“Investors may be reluctant to lock-in one-year borrowing costs at the current repo rate, given that it could move lower in coming quarters,” Standard Chartered Plc analysts led by Anubhuti Sahay wrote in a note Tuesday.

The LTROs have sparked a big rally in short-end bonds, with the yield on 7.32 per cent 2024 bond falling 29 basis points since Feb. 5, the day before the RBI announced 1 trillion rupees of repo auctions. Ten-year yields have declined by 10 basis points.