RBI to buy back government bonds worth Rs 40,000 crore on Thursday

Bond market participants said that the auction is expected to witness tepid demand as banks might refuse to sell bonds at a loss

The Reserve Bank of India (RBI) on Monday announced it would buy back government bonds worth Rs 40,000 crore on Thursday.

Bond market participants said the third buyback auction was expected to witness tepid demand as banks might refuse to sell bonds at a loss. Against the notified amount, banks could sell securities worth Rs 5,000 crore to Rs 10,000 crore to the government, they said.

The RBI had offered to buy back the same securities in the previous auction, said V R C Reddy, head of treasury at Karur Vysya Bank. “The price at which banks bought these securities doesn’t change. So the participation will be low, unless they offer to give up 2-3 basis points (yield) from the market price,” Reddy said. Price and yield move inversely.

The government has offered to buy back the 7.35 per cent 2024 bond maturing on June 22, the 8.4 per cent 2024 bond maturing on July 28, the FRB 2024 bond maturing on November 7, and the 9.15 per cent 2024 bond maturing on November 14.

The previous two auctions conducted by the RBI on May 16 and May 21 saw low participation. The RBI repurchased Rs 2,069 crore and Rs 10,512 crore worth of government bonds, against notified amounts of Rs 60,000 crore and Rs 40,000 crore, respectively. Before this, the RBI had conducted buyback auctions in 2018.

By repurchasing its own outstanding bonds from the market before they mature, the government reduces its liabilities and strengthens its fiscal position. The process involves using government funds to buy back these bonds, which are then typically retired, decreasing the total outstanding debt. This strategy allows the government to improve its debt profile by repurchasing higher-cost or shorter-term bonds.

“They (the RBI) are looking to alter this financial year’s borrowing programme, that's why they have not touched any security maturing in the next financial year or beyond that,” said a treasury head at a private bank.

Rs 29K cr G-sec to go for auction on Friday

The Reserve Bank of India (RBI) will sell Rs 29,000 crore worth of government securities at the weekly auction on Friday. This includes Rs 6,000 crore worth of 10-year green bonds.

Diverging from the pattern of issuing green bonds in the latter half, the government plans to issue green bonds worth Rs 12,000 crore in the first half of the current financial year. The green bonds will be issued in two tranches of Rs 6,000 crore each for a period of 10 years.

The RBI will also issue new five-year bond worth Rs 12,000 crore and Rs 11,000 crore of 40-year bonds.