Cut-Off For 2-Year Paper Set At 11.4%

The Reserve Bank of India (RBI) has set the cut-off yield at the auction of two-year Government of India paper for Rs 3000 crore at 11.40 per cent. This has taken the market by surprise since it was expecting a cut-off in the range of 11.30-35 per cent. Despite a higher cut-off, the auction did not sail through and there was a devolvement on the primary dealers to the extent of Rs 207 crore. "It was certainly not expected that the RBI would go to a yield of 11.40 per cent for two years," said K N Gangurde, managing director of STCI. "However, this cannot be taken as a signal of hardening of interest rates in the shorter end," he added.

The RBI received 138 bids for Rs 3,703 crore against the notified amount of Rs 3,000 crore. At the cut-off yield of 11.40 per cent, it accepted 125 bids for Rs 2793 crore. There was no devolvement on the RBI. The weighted cut off yield was 11.36 per cent. In the secondary market, papers of two-year maturity are being traded at 11.35-37 per cent. The primary yield on three-year paper was set by the RBI at 11.55 per cent, while the implicit yield on 364-day bills is presently 9.60 per cent. As on date, there is around Rs 6,300 crore locked up in the RBI fixed rate repos at 8 per cent.