Twin Auction Sees Big Subscription

The Rs 4,000 crore of twin open market operation (OMO) auction -- 7.37 per cent 2014 and 8.35 per cent 2022 paper -- was oversubscribed by 89.6 per cent as the Reserve Bank of India (RBI) received bids of an aggregate amount of Rs 7,584 crore.

The central bank received 104 bids of Rs 3,303 crore for Rs 2,000 crore of 7.37 per cent 2014 paper. The cut-off price for the auction was set at Rs 100.56 equivalent to an estimated yield of 7.2960 per cent and the apex bank accepted 53 bids. This paper was originally a ad-hoc treasury bills and was converted to its present form in April 2002.

 

For Rs 2,000 crore of 8.35 per cent 2022 paper, there were 96 bids of Rs 4,281 crore. The RBI accepted 60 bids at a cut-off price of Rs 106 equivalent to an estimated yield of 7.7498 per cent.

According to the money market dealers, the cut-off yield in both the auction was marginally below the expected level.

Said the treasury head of a private sector bank: "The lower than expected cut-off yield indicates that the central bank still favours a soft interest rate regime." Dealers said that both the paper auctioned today is illiquid in nature and financial institution was the main subscriber to it.

After the auction the prices of government security prices moved up by 15-25 paise. The rally is likely to continue tomorrow.

Said a dealer with a foreign bank: "The liquidity condition is already good in the market. Moreover as the RBI though today's auction indicates that it has no problem with low yield and hence the prices are likely to go up."