Government bond auction disappoints for fourth straight week

The Reserve Bank of India (RBI) failed to sell all the debt it offered to bidders at an auction for the fourth week in a row on Friday, raising concerns the government may have to pay investors much more to complete this year’s borrowing programme. The RBI, which manages the government’s borrowing programme, was scheduled to sell 120 billion rupees ($1.78 billion) of four different securities.
 

But it could sell only Rs 810 million of the 6.84 per cent 2022 bond to bidders out of the 30 billion on offer. The remaining Rs 29.2 billion had to be bought by the underwriters of the auction.
 

The persistent lack of demand is a cause for worry for the government, which is scheduled to borrow a total 6.05 trillion rupees ($89.87 billion) in the current fiscal year that started in April.
 

“There is no demand for short-end papers and if this continues, then even the long-end papers will not be sold fully,” said a senior treasury official at a large state-run bank, adding that the Reserve Bank of India will need to buy more bonds through open market auction to cool off yields.
 

The RBI is scheduled to buy Rs 100 billion of bonds via open market operation on May 17. After the auction the 10-year benchmark bond yield eased by one basis point to 7.73 per cent as the long-end papers were fully sold. The bond had closed at 7.72 per cent on Thursday.