Rs 7000 Crore Twin Auction On Monday

The Reserve Bank of India will conduct twin auction Rs 7,000 crore -- Rs 5,000 crore of 11-year paper and Rs 2,000 crore of 25-year paper -- on Monday. The 25-year paper will be the paper longest maturity auctioned so far in the current fiscal year.

With the auctions the RBI will complete more than seventy per cent of the gross government borrowing programme of Rs 1,19,770 crore.

Dealers in the government security market feels that the recent move by RBI was mainly to mop up liquidity in the market to arrest the fall of yields in the government security market. The treasury head of a private sector bank said, "as the Ways and Means Advances figure shows there was not much need to raise money from the market. But as the RBI, through its open market operation in the last week signaled that it is not comfortable with the excess liquidity in the system, the auction announcement seems to be a similar move."

The Central bank has mopped up more than Rs 12,000 crore through its open market window in the last week. The yield of 10-year paper which dipped to 9.05 per cent went up to 9.12 per cent.

The twin auction, though is likely to receive good response, will raise the yields of government security further, dealers said.

Another dealer said, "though there is no need for fund for the central government, the RBI taking advantage of the comfortable liquidity scenario is trying to complete the government borrowing programme as much as possible." He also added that the central bank is using the opportunity to elongate the maturity profile of government's debt holding as well.

Dealers, however, expected the move in the afternoon hours and the rise in the government security prices was arrested. A dealer with a nationalised banks said, "this was an expected move going by the last week's experience and that's why there was no buying interest in the market in the afternoon."