RBI cancels bond tranches at auction

By Neha Dasgupta and Suvashree Choudhury

MUMBAI (Reuters) - The Reserve Bank of India cancelled three out of four government bond tranches being sold at its weekly auction on Friday, a step traders said indicated the government's reluctance to borrow at higher yields.

The RBI was scheduled to sell 150 billion rupees ($2.36 billion) worth of bonds on Friday, but only accepted 60 billion rupees in bids for the 7.88 percent 2030 bonds, setting a cut-off price of 97.87 rupees and a yield of 8.1295 percent.

"The government may have thought it is not fruitful to borrow at these levels and would want to wait for the yields to cool off," said B. Prasanna, managing director and chief executive at ICICI Securities Primary Dealership Ltd in Mumbai.

He said bond prices may fall again if the government announces another full-size 150 billion rupee auction for next Friday, as investor appetite is low.

The RBI cancelled the sale of 7.35 percent 2024 bonds, 7.95 percent 2032 bonds and 8.17 percent 2044 bonds.

Earlier this month, the central bank devolved 21.55 billion rupees of bonds in two of its auctions.

The 10-year bond yield is about 23 basis points above its levels in January, before the RBI cut its key repo rate by a total of 75 basis points to 7.25 percent.

"As of now, the government has enough surplus so there is no need for them to panic or hurry and borrow," said Ashish Vaidya, head of trading, asset liability management, at DBS in Mumbai.

Traders pointed to recent tax inflows that have helped the government's cash balance and prompted it to postpone auctions.

Vaidya said he saw the 10-year benchmark yield easing to 7.50 percent/7.60 percent from 7.80 percent by July-end.

($1 = 63.6400 rupees)

(Additional reporting by Savio Shetty; Editing by Prateek Chatterjee)