Bond yields to ease as govt cancels deferred auction

Yields on government bonds are expected to ease, following the Centre's decision to cancel a deferred bond auction for Rs 15,000 crore.

The Reserve Bank of India (RBI) said after reviewing the government's cash position and funding requirement, it had decided to cancel the auction. Last month, RBI had deferred the auction, originally scheduled for January 17. Plans for this financial year's last auction, of bonds worth Rs 10,000 crore and scheduled for Friday, remain unchanged.

RBI said cancellation of the Rs 15,000-crore auction would scale down the government's market borrowing programme for 2013-14. For this financial year, gross market borrowings through dated securities were estimated at Rs 5,79,000 crore (net Rs 4,84,000 crore, after repayments for bonds maturing in this period). This excluded Rs 50,000 crore of buybacks/switches.

N S Venkatesh, head of treasury and chief general manager, IDBI Bank, said bond markets would rally and yields could fall up to 10 basis points. On Wednesday, the yield on the 10-year benchmark government bond (8.83 per cent, 2023) closed at 8.71 per cent.

Meanwhile, the central bank said last week, securities worth Rs 27,000 crore, set to mature in 2014-15 and 2015-16, had been switched with long-tenure bonds with institutional investor. However, it did not provide the details about the securities swapped and the pricing.

Budget 2013-14 had provided for Rs 50,000 crore of buyback/switches.