Rs 31,000-crore govt bond auction sees firm demand on short covering

The Rs 31,000 crore government bond auction saw firm demand as traders covered their short bets at the auction, dealers said. The cut-off prices that were set were higher than expectations. 
 

Typically, traders place short bets ahead of weekly fresh bond supply to cover at auctions.

The government offered to sell Rs 7,000 crore of the 7.17 per cent, 2030 bond, Rs 12,000 crore of the 7.41 per cent, 2036 bond, and Rs 12,000 crore of the 7.25 per cent, 2063 bond at the auction.

The Reserve Bank of India set the cut-off price on the 7.41%, 2036 bond at Rs 101.90, against the market expectation of around Rs 101.83.

Public sector banks (PSBs) stocked up on the 7.17%, 2030 bond, dealers said. Typically, PSBs keep the seven-year paper in their held-to-maturity portfolio. Some dealers said that a few PSUs bought the 7.41%, 2036 bond for their held-to-maturity portfolio as they found the levels lucrative.

“Earlier, state-owned banks used to go for only 5-year, 7-year, and 10-year papers but now we are going for the 14-year paper also,” a dealer at a PSB said.

Moreover, primary dealerships covered short position on 7.41%, 2036 bond at the auction, dealers said.

“PDs (primary dealerships) had placed short bets before auction thinking that price (of 7.41%, 2036 bond) might go up to Rs 101.82 -Rs 101.83,” a dealer at another PSB said. “They quickly realised that it might not fall that much, and started covering.”

The better-than-expected cut-off spilled into the secondary market, and the benchmark 7.26%, 2033 bond settled 10 paise higher, at Rs 101.28. The yield on the benchmark 10-yearbond ended the day at 7.07%, as compared to 7.09% on Thursday. Bond prices and yields move inversely.

“The secondary market started moving up even before the result,” a dealer at a primary dealership said, adding, “There was about Rs 5000- Rs 6000 crore worth of short covering at the auction.”