Smooth sailing for FY14's first govt bond auction

In 2012-13, the first auction worth Rs 18,000 cr had seen devolvement on primary dealers to the tune of Rs 1,195 cr

The first government bond auction in the new financial year, worth Rs 15,000 crore, sailed smoothly today on the back of easy liquidity in the system. The Reserve Bank of India (RBI) sold four government bonds — the 8.12 per cent 2020 worth Rs 4,000 crore, 8.33 per cent 2026 worth Rs 6,000 crore, 8.32 per cent 2032 worth Rs 2,000 crore and the 8.30 per cent 2042 worth Rs 3,000 crore.

Liquidity is comfortable, evident from bank borrowings under RBI’s liquidity adjustment facility (LAF) at Rs 48,765 crore today against Rs 1 lakh crore of last month.

“The first auction getting fully subscribed gives a positive signal to the market. Banks have high liquidity and that got deployed,” said S Srinivasaraghavan, executive vice-president and head-treasury, Dhanlaxmi Bank.

In 2012-13, the first auction worth Rs 18,000 crore had seen devolvement on primary dealers to the tune of Rs 1,195 crore.

Meanwhile, the yield on the 10-year benchmark government bond 8.15 per cent 2022 ended at 7.93 per cent, compared with the previous close of 7.96 per cent. According to bond dealers, the yield is expected to fall further next week, due to easing liquidity.

Credit growth is muted in the first quarter of every financial year, due to which banks are expected to actively invest in government bonds, said dealers. They say RBI will cut the repo rate further and at that time, their investments in these government bonds will reap good returns.

The central bank will auction government bonds worth Rs 3.79 lakh crore in the first half of the current financial year. The government’s gross market borrowings for all of 2013-14 are pegged at Rs 5.79 lakh crore.