RBI extends tenure of 4 types of bonds

Consensus estimate of market is that govt would redeem about Rs 1.75 lakh cr of bonds in the next FY

The Reserve Bank of India (RBI) has converted four types of securities totalling Rs 37,078 crore and maturing in 2017-18, to longer-tenure ones maturing in 2024-25 and 2029-30. 

This takes off redemption pressure. About Rs 2.30 lakh crore of bonds are scheduled to mature in 2017-18 and the market was expecting the government to do some aggressive 'switching' of these bonds to longer-tenure debt paper.

The consensus estimate of the market is the government would redeem about Rs 1.75 lakh crore of bonds in the next financial year so that the gross borrowing programme can be kept in check. RBI's switch should be seen in that context, say bond dealers. The switching happened on January 25, RBI said. Meanwhile, the RBI conducted auctions of four types of bonds totalling Rs 11,000 crore. Of the Rs 2,000 crore in a 17-year bond, about Rs 1,325 crore remained unsold.

According to a senior bond trader, the reason for the development is that the market has good demand in the 10-year and ultra-long segments, where banks and insurers are major buyers. But for maturities in between, the demand is quite less as these bonds are seldom used by insurance companies to meet their asset-liability requirements and because these bonds quickly run out of liquidity in the secondary market.