Aggressive Cut-Offs For 17-Yr, 29-Yr Papers

The Reserve Bank of India (RBI) announced aggressive cut-off yields at the auction of two government securities held today.

While a cut-off yield of 5.972 per cent was set for the 6.35 per cent 2020 paper, the 29-year tenor 7.95 per cent 2032 was cleared at cut-off yield of 6.20 per cent.

The 17-year 2020 paper is currently trading at 6.239 per cent whereas 29 year paper is trading at market yield of 6.20.

Dealers were expecting a higher cut off for the 29-year paper owing to risk premium attached to the longer maturity paper.

The market is of the view that the cut-off yields have been more aggressive than that of the expectation indicates the fact that there is further scope for the rates to go down.

 

Specifically, the cut off yields on the 29-year paper which was expected to be moderately bid has reiterated the bullish outlook of the market.

The auction was well subscribed with the RBI receiving total bids worth around Rs 20,957 crore for Rs 9,000 crore worth of papers.

As against a notified amount of Rs 6,000 crore, a total of 371 bids worth Rs 15,722 crore was put forward for the 2020 paper out of which 115 bids were accepted for Rs 5,700 crore.

The rest Rs 300 crore was mopped up from the non-competitive bids. Similarly, for a notified amount of Rs 3,000 crore for the 2032 paper, 134 bids totalling Rs 2,931 crore was received out of which 12 bids were accepted for a total amount of Rs 2,931 crore and rest was taken from the non competitive bids.

Market dealers are of the view that these cut off yields will trigger a price rally in the market across maturities. The market had opened on a dull note on Monday with the inflation rates inching up as against last week.

However auction cut off may prove as turning point in terms of sentiment well as trading.