RBI manages to sell entire stock in Friday's Rs 120-bn bond auction

RBI, on behalf of the government, sold five bonds, including one fixed rate bond maturing in 2031, against which it raised Rs 40 bn

After seeing four of its bond auctions partially remaining unsold, the Reserve Bank of India (RBI) managed to sell the entire stock of its Friday’s Rs 120 billion auction to the market.

The RBI, on behalf of the government, sold five bonds, including one fixed rate bond maturing in 2031, against which it raised Rs 40 billion. 

Economic Affairs Secretary, Subhash Garg said in a televised press conference at New Delhi that the government may have misunderstood the market demand for certain set of maturities, and it may change the composition of bonds used to borrow the first half programme of Rs 2.88 trillion. However, the government is in no hurry to change the composition as of now and would wait for a few weeks to see the auctions, he said.

After having a discussion with market participants, the government had decided to introduce five-year and two-year bonds. 

However, the market participants demanded higher yields (or lower value) for the five-year segment, which the central bank was not prepared to give. Primary dealers or underwriters of the bonds were forced to buy them. On Friday’s auction, the government raised Rs 10 billion from a two-year bond. 

In his interaction with reporters, Garg said that there was always a demand for bonds in a growing economy, but for a price. He did not subscribe to the view that there was no demand from banks for the bonds on offer when the portfolio was incurring mark-to-market losses because of steep rise in yields.

Garg also seemed calm about the outflow of foreign investors from the local markets. He expressed confidence that the investors would come back when they find it convenient for them.

The 10-year bond yield closed at 7.83 per cent, down from its previous close of 7.88 per cent. The trading hour was extended till 6.30 pm, from the earlier 5 pm to facilitate allotment of auction stock, said a senior bond trader. 

"On the face of it, it seems the rise in yield has stopped. There is a relief in the market," said the bond dealer.