The yield on 10-year benchmark government securities inched up on Thursday as the Reserve Bank of India (RBI), for the second time, rejected the bids as traders demanded higher yields at the sovereign bond auction worth ₹31,000 crore. The 10-year G-sec closed 10 basis points higher at 6.13%.
Primary dealers who underwrite the auction had to buy ₹21,592 crore of government securities with maturities in 2025 and 2030. In last Friday’s ₹26,000-crore auction, RBI decided to devolve ₹6,736 crore of the 6.22% government 2035 bond on primary dealers.
A near-record debt sale plan by the central government and concerns over few liquidity measures are spooking traders and disrupting debt auctions.
“Currently, issuances are high compared to the minimal supply in the fourth quarter. A deluge of supply is already on the cards from April. All this is happening at a time when bank credit growth is showing improvement and there is no expectation of a rate cut. The direction of rate structure has reversed towards upside and RBI can control the slope, said Soumyajit Niyogi, associate director, India Ratings.
RBI also issued the new 40-year bond at 6.76% as part of Thursday’s auction. It raised ₹3,501 crore out of the ₹7,000 crore of bonds auctioned.
These 40-year bonds were first introduced on 26 October 2015 with the Centre raising ₹1 trillion. Another set was issued on 6 May 2019 and ₹83,462 crore was raised. In 2020, two bonds were issued on 30 April and 31 August. The bonds have been used to borrow ₹2 trillion from the market.
Over the past one week, the RBI has taken a series of steps to keep yields under control. It held a special G-sec auction, a separate open market operation (OMO) and Operation Twist to drive yields below 6%.
After February’s monetary policy review, yields surged in the absence of an OMO calendar. The RBI had assured that the borrowing programme will be concluded without any disruption, but traders expect the yield on 10-year G-sec to touch 6.25% because of oversupply and liquidity normalization measures.
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