RBI rejects bids at bond sale for second consecutive week

MUMBAI (Reuters) - The Reserve Bank of India did not accept all the bids at its 150-billion-rupee ($2.24 billion) government bond sale on Friday, including for the benchmark 10-year debt, marking the second week in a row when it has rejected some of the bids.

The RBI accepted only 49.4 billion rupees worth of bids for its 70-billion-rupee sale of 2025 bonds, and accepted only 22.9 billion rupees of the 30 billion rupees worth of 2034 bonds being sold. The remaining three bonds were fully allocated.

The RBI can choose not to accept all bids at the debt auctions through a process known as a "devolvement", which leads underwriting dealers to buy up the shortfall in undersubscribed tenders at the determined cut-off yield.

"The yield may not have been acceptable, and they would have found it too high," said Ashish Parthasarthy, a treasurer at HDFC Bank.

The devolvement comes at a time when the RBI is engaged in a tricky balancing act with domestic yields to keep volatility out of its bond markets ahead of the Federal Reserve's policy decision this month.

($1 = 66.8450 rupees)

(Reporting by Neha Dasgupta and Savio Shetty; Editing by Sunil Nair)