The twin auctions of government bonds worth Rs 6,000 crore tomorrow are expected to see active bidding despite the tight liquidity conditions, bond traders said. | |
| The Rs 3,000 crore of the 7.40 per cent 2035 paper is expected to be bought entirely by public sector life insurer Life Insurance Corporation (LIC), as it did at the last auction, to meet its asset-liability mismatch. |
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| The Rs 3,000 crore auction of 7.46 per cent, 2017 bond is likely to get aggressive bids from banks having statutory liquidity ratio (SLR) holdings close to the mandatory 25 per cent of liabilities. |
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| Traders said LIC would be aggressive to ensure its bids are accepted as it would otherwise have to buy the same bonds at a higher price from the market. |
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| The cut-off yield of the 11-year bond is expected to be 7.37 per cent at Rs 100.60/70. This paper will witness good demand from state-owned banks, as they can directly transfer the short-tenure gilt to the held-to-maturity (HTM) category. Another important factor is that this bond auction would be at uniform price. |
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| The auction of 29-year bond is expected to be at a cut-off yield of 7.52 per cent priced at Rs 98.50. |
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| Both the auctions will be re-issue of existing bonds. |
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| The 7.40 per cent, 2035 bond ended today with an yield of 7.50 per cent. The 11-year paper is illiquid, but a similar maturity paper, 7.49 per cent, 2017 bond, closed at an yield of 7.33 per cent. |
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| The auctions are expected to sail smoothly, but the cash-starved banking system will have to bear a further debt in liquidity following the auction outflows, dealers said. |
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| The Reserve Bank of India (RBI) today absorbed a mere Rs 100 crore through the reverse repo auction, even as it injected a total sum of Rs 17,920 crore. |
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| Over the last one week, the overnight call rate "" the rate at which commercial banks borrow daily to tide over their temporary liquidity mismatches "" has been hovering around a three-year high of 7.20 per cent, almost one percentage point higher than the RBI's repo rate. |
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| The RBI, on an average, has been pumping in over Rs 20,000 crore daily into the financial system through its repo window. |
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| The yield on the 10-year corporate bond has climbed to around 7.75 per cent now (from around 7 per cent in November), while the benchmark 10-year government bond yield has remained virtually unchanged at around 7.15 per cent or so. |
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| In the mid-term review of the policy in October last year, the RBI hiked the repo rate and reverse repo rate by a quarter percentage point each to 6.25 per cent and 5.25 per cent, respectively but left the bank rate unchanged at its three-decade low level of 6 per cent. |
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| Since October 2004, the reverse repo rate has been increased by 75 basis points in three stages. Commercial banks have jacked up their lending rates at least by 75 basis points without tinkering with their benchmark prime lending rates. The trigger for the rate hike was the sudden tightness in liquidity. |
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| The redemption of India Millennium Bonds in December sucked out over Rs 33,000 crore from the system, which was already strained on account of the huge credit offtake. |
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| The tightness has intensified with the central and state governments parking around Rs 60,000 crore surpluses with the RBI. These funds would flow into the system if the government starts spending. |
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