Rbi Forced To Ration 14% 2006 Gilt

The Reserve Bank of India (RBI), in an aggressive stance in its open market operations, mopped more than Rs 700 crore on Tuesday and nearly Rs 300 crore yesterday. So high was the demand that one of the papers had to be rationed out to banks.

The RBIs offer to sell 12 government-dated stock at attractive prices saw a bull run in the gilts market. Huge demand emerged for the 14 per cent government security maturing in 2006, forcing the apex to ration the security that it put on sale on Tuesday.

Many banks rushed to purchase the 9-year paper (14 per cent 2006) at the RBI sale window being offered at a yield to maturity (YTM) of 13.54 as they found it attractive compared with the ten-year paper being traded at a YTM of 13.55 per cent in the secondary market.

Sudden rush by many banks for the nine-year paper forced the RBI to ration its sales selectively as well as quantitatively.

Banks who tapped the RBI window on Tuesday for the 14 per cent gilt maturing in 2006 were early birds able to buy the required quantity. However, the banks who approached the RBI yesterday were disappointed as the RBI was offering the paper in small lots as it had to satisfy several banks, said a treasury head with a foreign bank.

The government had raised around Rs 3,000 crore through the issue of Rs 14 per cent paper maturing in 2006 and the RBI sold Rs 550 crore worth of paper on Tuesday and nearly Rs 90 crore yesterday. This means that the apex bank was exhausting this particular stock from its portfolio which forced the RBI to sell the paper selectively and in small lots, said a nationalised bank treasury official.

Yields signalled to move southwards by the RBI through the open market operations made the gilts attractive for the banks as it was an opportunity to buy to set it off against the depreciated ones. Hence, banks made a beeline for the longer maturity papers at the RBI window. With the 14 per cent government stock (2006) drying up at the RBI sale counter, banks were seen shifting their buying interest in the 13.85 per cent paper maturing in 2001. The apex bank sold the four-year 13.85 per cent gilt at a yield to maturity of 13.16 per cent and the SGL recorded Rs 200 crore sales yesterday.

Government-dated securities transactions recorded in the subsidiary general ledger (SGL) soared to Rs 1,118 crore on Tuesday and another Rs 663 crore worth of trades were recorded yesterday.

Bank treasury heads attribute the sudden surge for dated government stock to the RBI signaling the lowering of the yields across the board on all 12 papers that it put on sale counter on Tuesday.