4-Year Paper Oversubscribed 126%, Cutoff At 10.85%

The Reserve Bank of India (RBI) set the cut off yield at the auction of four-year Central government loan at 10.85 per cent. Against the notified amount of Rs 5,000 crore, 534 bids were received for a sum of Rs 11,307.82 crore. Of the 247 bidders who were successful, 40 of them received partial allotment. There was no devolvement on either the apex bank or primary dealers.

While the cut off level of 10.85 per cent is in line with market expectations, interestingly enough the weighted average yield was 6 basis point lower at 10.79 per cent, suggesting that the expectations of some bidders was much lower. Unlike earlier auctions when there were only a handful of successful bidders, this security is more widely dispersed in the market, said the treasury head of a private sector bank.

Given that the issue was oversubscribed more than twice over, the security should open for trading at a premium.

No pressure is also likely on the overnight interest rates on account of the outflow of Rs 5,000 crore, as there is a surfeit of liquidity in the banking system. The response at the repos auction confirms the existence of surplus liquidity. At the cut off repos rate of 3.60 per cent all the three bids tendered for a sum of Rs 3,750 crore were accepted by RBI.

With yesterdays auction, against the budgeted gross borrowing programme of Rs 52,963 crore, the apex bank has already raised Rs 28,685.86 crore with the issue of dated paper. In addition, slightly over Rs 7,905 crore has been raised by the auctioning of 364-day treasury bills. If the call rates rule easy in line with expectations, it should provide a fillip to trading sentiments. Trading volumes in the wholesale debt market segment of the NSE have dipped from a high of Rs 1,500 crore to less than Rs 400 crore.

At the same time, the volumes as reflected by the subsidiary general ledger (SGL) have similarly fallen.

Trading is expected to be heavy in the new security and should account for a bulk of the trading volumes.