Double Auction Clocks Oversubscription

The twin auction of government paper conducted today received huge oversubscription.

The 10.71 per cent 2016 paper was oversubscribed by more than 146 per cent, while the eight-year floating rate paper received an oversubscription in excess of 126 per cent.

The Reserve Bank of India (RBI) received 256 bids of Rs 7,387.154 crore for the 3,000 crore of 10.71 per cent 2016 paper.

The central bank accepted 100 bids of Rs 3,000 crore. For the floating rate paper there were 108 bids of Rs 6,787.80 crore. The RBI accepted only 21 bids of Rs 3,000 crore.

The cut-off price of the 10.71 per cent 2016 paper was Rs 121.99 equivalent to an estimated yield to maturity of 8.09 per cent.

 

The cut-off price of the 2016 paper was in line with the secondary market price of 120.11. The cut-off spread for the eight-year floating rate paper was pegged at a negative of one basis point over the base rate resulting a coupon of 6.98 per cent for the first six-month period.

Dealers said that there was huge demand for this floating rate paper which caused the paper to sail through at a very low cut-off yield.

A dealer said : "the auction result was expected on the back of excess liquidity in the system. Banks subscribed heavily in the floating rate paper as it is a low interest rate risk instrument."

The government security prices, however, fell by 10-15 paise after the auction result even though the auction result was satisfactory to the market participants. The treasury head of a private sector bank said: "there is feeling in the market that the prices rose too much already and hence went for profit-booking. We expect the trend to continue for the next couple of days."