4-Yr Gilt Auctioned At 11.68% Yield

The auction of four-year government paper for Rs 2,500 crore sailed through without a devolvement yesterday at a cut-off yield of 11.68 per cent.

The Reserve Bank of India received an overwhelming response of 196 bids totalling Rs 7,711.60 crore. This, coupled with the fact that there were only 14 bids accepted for the notified amount at the cut-off yield, indicates that the security is now in the hands of a few players. This could set the stage for another on-tap issue of the same security, said a dealer. "We can now expect a revival of interest in the four-year stocks," said another market player.

The cut-off yield was in line with the market expectation which had been revised downward since last week in view of the abundant liquidity in the system. While most market players expected a cut-off in the range of 11.70-11.75 per cent earlier this week, the expected surge in inflows through the Resurgent India Bonds adding to the existing liquidity has seen yields falling. It may recalled that at the auction of 6 year paper on July 23, the RBI gave a cut-off of 11.95 per cent, an yield at which there was a devolvement. In the secondary market yesterday, the 11.15 per cent 2002 was traded at an yield of 11.68-69 per cent.

With this auction, the government has raised Rs 49,929.03 crore through dated securities. This represents around 63 per cent of its gross borrowing programme of around Rs 79,376 crore.

There was no devolvement on either the primary dealers or the Reserve Bank of India. The RBI's net credit to the government for this fiscal as on July 17 stands at Rs 18,553 crore.

Primary dealers had been given the option of underwriting 50 per cent of the notified amount, and were offered a maximum commission of 18 paise.

Against the notified amount of Rs 2,500 crore, 196 bids aggregating Rs 7,711.60 crore were tendered. At the cut-off yield of 11.68 per cent, the RBI accepted 14 bids for Rs 2,500 crore. Of these, 10 bids were partial allotments, and the percentage of partial allotment was 66.92 per cent. The weighted average yield was also 11.68 per cent.