Some days you trade the market. Some days the market trades you. Today was the second kind.
Let me just walk you through it, because honestly, by 4 PM half the desk had given up trying to predict what comes next.
Morning: Gap Down, But We Held
Opened to a mess. Crude ripping to $108 after the Houthis hit an East-West pipeline overnight, ECB hiking rates while we were enjoying our dinner, and our own calendar stacked — 36K cr SDL auction lined up for next week, a 26-day VRRR, and a 32K cr Gsec auction all in the mix.
First blow landed early — the morning VRRR flopped. 60K cr subscribed against a 5 lakh cr offer. That’s not a soft bid, that’s the market basically saying “no thanks” to the RBI’s own liquidity withdrawal tool.
And yet — credit where due — the market held its ground. Gap down, failed VRRR, ECB overnight, crude spiking… and we still crawled back to the day’s highs. For about an hour there, it genuinely felt like we might shrug the whole thing off.
Then….
Midday: One TV Byte, One Ugly Selloff
RBI governor comes on TV, drops a line about having options beyond VRRR and CRR if needed. That’s it. That’s all it took.
Market turned on a dime, sold straight down to day’s lows. 5-year got absolutely hammered — yields up 10 bps intraday. If you were sitting long duration into that comment, you felt it in your stomach before you felt it in your P&L.
The Auction: RBI Blinked, or Did They?
Then the 3-year cutoff came in and nobody on the desk had a clean explanation for it.
11,000 cr on offer. Bids worth 23,263 cr came in — more than double covered. RBI accepts… 4,500 cr. At a cutoff lower than street expectations. They just left more than 18,000 cr of demand sitting on the table.
Everyone’s asking the same question — are they not comfortable with where yields printed? Is this a message? Market took some comfort that they didn’t force paper through at a worse level, but nobody’s relaxed. We closed the day watching our backs.
10Y ended at 7.02%, up 4 bps. 5Y at 6.66%, up 8 bps. Not a bloodbath, but a day that leaves a mark.
After the Bell: Just When You Thought It Was Over
Market shuts, everyone’s packing up, and RBI drops a 1 lakh cr OMO sale — 2029 to 2031 maturities. Which lines up almost exactly with the FCNR redemption window.
Read that again. Same day the government couldn’t place 11K cr of the 3-year comfortably, RBI turns around and says it wants to pull out 1 lakh cr more from the system on the 17th. Make it make sense.
Here’s how I’m reading it. RBI wanted to sterilise the surplus liquidity the easy way — soft VRRR, no drama, pull it out at its own pace without spooking anyone. But the market got smart about it, tried to play the RBI’s own hand back at them, angling for an exit on their terms instead of the RBI’s. That auction cutoff was the first sign they weren’t going to let that slide. The OMO sale after the bell was the punishment leg — RBI making sure the message landed and the sterilisation happened anyway, market’s comfort be damned. And there’s another way to read this too — maybe it’s not just about teaching the market a lesson, maybe they’re genuinely nervous about inflation and this is them blinking first. If that’s the real story, an October hike just started looking a lot more likely.
And Then Washington Joined the Party
As if we needed one more thing — US core CPI printed hot overnight. September hike odds for the Fed now sitting at 89%.
Bottom Line
Failed VRRR in the morning, RBI jawboning at noon, a cutoff that raised more questions than it answered, and an OMO sale dropped like a mic after the market went home. Add a hot US CPI print for garnish.
Nothing about today got resolved. It just got more layered.
Picture abhi baki hai. Let’s see what Monday brings.