Govt bond auction for Rs 32,000 crore sails through as RBI accepts bids

The government bond auction for Rs 32,000 crore, the first after the 40 basis point hike in the policy repo rate, sailed through on Friday as the Reserve Bank of India (RBI) accepted the bids.

The auction was scheduled for four securities — 5.74% GS 2026 (Rs 9,000 crore), GOI Floating Rate Bond 2028 (Rs 4,000 crore), 6.67% GS 2035 (Rs 10,000 crore), and 6.99% GS 2051 (Rs 9,000 crore).

Bond dealers said the yield had moved up before the repo rate hike. The acceptance of bids indicates the RBI is not alarmed at the rising yields.

If government borrowing costs are rising, there is a case for companies raising money through bonds.

The cut-off for 5.74% GS 2026 paper was 7.20 per cent at auction. The closing yield for the same paper in the market was 7.23 per cent, according to Clearing Corporation of India’s data.

The cut-off for the 6.67% GS 2035 bond was 7.61 per cent. The closing market yield for this paper, at 7.64 per cent, was higher than the RBI’s cut-off at the bond auction.

Meanwhile, the bond yield on the 10-year benchmark hardened by five basis points to 7.45 per cent at the close of trading.

ICICI Bank, in its note after the policy rate hike, said the Monetary Policy Committee (MPC) of the RBI delivered a surprise with an off-cycle policy repo rate hike of 40 bps, given the rising domestic and global inflationary pressures and the Fed rate hiking cycle.

The MPC believes there are upside risks to India’s inflation trajectory set out in April 2022.

Besides hiking the policy repo rate, the RBI increased the cash reserve ratio by 50 bps to 4.5 per cent to absorb excess liquidity.