The desperate dance by the RBI.

"According to World Bank forecasts, the global economy will shrink by 5.2% this year. That would represent the deepest recession since the Second World War, the largest fraction of economies experiencing declines in per capita output since 1870, the World Bank says in its June 2020 Global Economic Prospects." "About 84 percent of Indian households saw their incomes fall last month under the world's strictest shelter-at-home rules, and many won't survive much longer without assistance," a study showed last month. In rural India, "A significant 68% of households said they had reduced food items in their meals, 50% of households had reduced the number of times they were eating in a day and 24% of households had borrowed food grains." "Having inflated balance sheets once again to keep a lid on long-term borrowing costs during the pandemic, central banks now face a conundrum over how to keep the steep rise in government and company debt affordable as markets anticipate the recovery," wrote Mike Dolan. "The Fed (US Federal Reserve) is debating on targeting the different parts of the yield curve to ease financial conditions in the economy," wrote Murthy Nagarajan. "The 10-year US yields are trading at 0.80 percent and the 30-year yield is close to 1.80 percent." The Japanese central bank is committed to keeping 10-year yield below 0.10 percent. The Reserve Bank (RBI) has been trying to bring down borrowing costs for the government by cutting interest rate aggressively, bringing it down to 4% in an emergency meeting last month. However, "The spread in government securities between the five-year yield and 10-year is 80 basis points and the spread between 10-year and 30-year is another 60 basis points," which makes the 30-year yield very high considering the yield on 10-year bonds "has remained around 6 percent even after the 115 basis points repo rate cuts". The RBI has been twisting and switching to help the government. First it resorted to Operation Twist, at which it bought Rs 100 billion worth of 10-year bonds with yield of 6.45% and sold bonds paying 6.65%, 7.80%, 8.27% and 8.12%, all maturing in 2020, wrote George Mathew. But, short maturities mean that the government will have to redeem these bonds very soon, so the RBI attempted a 'switch auction', during which it wanted to buy bonds worth Rs 270 billion maturing in the next two years for longer term bonds because, otherwise, the government will have to redeem bonds worth Rs 2.29 trillion in the next two years. Investors were not enthused. "As governments and central banks shift from rescue to recovery mode", "After rolling out trillions of dollars worth of measures to prevent their economies and markets from collapsing, they are now doubling down with even more spending to backstop a recovery as coronavirus lockdowns ease," wrote Enda Curran. Sadly, our piggy bank is empty. So the dance by the RBI. Not pretty.