RBI cancels sale of two bonds scheduled for Friday; bonds rally

RBI sold Rs 4,000 crore in bonds at the auction

India's benchmark 10-year bond rallied on Friday, sending its yield down as much as 13 basis points on the day after the Reserve Bank of India accepted bids for less than a third of the number of bonds being sold at the auction.

The RBI did not accept any bids for the 6.84 per cent 2022 bond nor the 6.68 per cent 2031 bond being auctioned on Friday, after initially seeking to sell up to a combined Rs 11,000 crore ($1.72 billion) in both.

The central bank, however, sold Rs 4,000 crore in bonds at the auction, split equally among the 6.57 per cent 2033 bond and the 7.06 per cent 2046 bond. 

The unexpected decision not to accept any bids for two of the issuances reduced some of the liquidity concerns that had sent bond prices sharply lower this week after the government said it would sell an additional Rs 50,000 crore in January-March.

Traders said the rejecting of bids at the auction was not being seen as a rate signal but was more of a temporary relief for the market after the recent sell-off.