FII auction of govt debt fully subscribed

Bond yields rise above 8%

The auction of government debt for foreign institutional investors (FIIs) sailed through well on Monday. But government bond yields rose sharply on fears the Reserve Bank of India (RBI) may take further steps to curb liquidity.

The total demand in today's auction was worth Rs 25,905 crore, while the amount available for auction was Rs 23,661 crore. The previous auction held last month was not a complete success as the market demand was worth Rs 39,171 crore while the debt available for auction was Rs 42,022 crore.

The yield on the 10-year benchmark government bond 7.16 per cent 2023 ended at 8.09 per cent compared with the previous close of 7.94 per cent. “There has been no consistency and clarity on what will be RBI’s actions in terms of liquidity and interest rates. There are concerns in the market that RBI might take more liquidity tightening steps or might resort to a rate hike in the first-quarter review of the monetary policy on July 30,” said  Prasanna Patankar, senior vice-president at STCI Primary Dealer.

According to government bond dealers, there are concerns because the moves announced by the central back last week to tighten liquidity did not help the rupee much in terms of appreciation. Government bond dealers expect the yield on the 10-year benchmark bond to trade in the range of 8-8.10 per cent on Tuesday. Meanwhile, in Monday's auction of government debt for FIIs, the total number of bidders were 51, compared with 37 last month. The cut-off rate was 0.05 bps, compared with 0.0001 bps last month. While the highest bid was 1.00 bps compared with 0.50 bps in last auction.

In recent times FIIs have been selling domestic debt as US yields are becoming more attractive for them.