Govt securities auction devolves on bond house

A sharp rise in food inflation hit the auction for government securities worth Rs 11,000 crore today, forcing bond houses to buy unsold portion.

The government was to raise Rs 11,000 crore by selling three kinds of securities. The Reserve Bank of India, which conducted auction, fixed high cut-off yield points (low price) than market expectation.

The sharp rise in wholesale food inflation influenced market sentiment. Both led to partial devolvement, dealers said.

The three kinds of bonds on offer were bonds maturing in 2017 (7.49 per cent) for Rs 4,000 crore, bonds maturing in 2020 (7.80 per cent) for Rs 4,000 crore and those which are to be redeemed in 2027 for Rs 3,000 crore.

RBI accepted 33 bids amounting Rs 2,501.7 crore for bonds maturing in 2020. This would mean primary dealers (bond houses) who have under-written the auction, will have to purchase unsold bonds amounting Rs 1,460 crore. Also, in the case of 2017 bonds, bond houses would have to pick up bonds for Rs 723.50 crore.

The wholesale food inflation saw a sharp increase to 18.32 per cent for the week ended December 25, primarily due to a steep rise in onion prices. The inflation rate is at a 23-week high, much above the expectations of analysts and policymakers.