Weekly govt bond auction sails through; Nov rupee's worst month since July

The govt's weekly bond auction saw strong demand with yields aligning to expectations, while the rupee recorded its weakest month since July amid dollar demand and cautious market sentiment

The government sold ₹32,000 crore worth of bonds at the weekly auction on Friday. The cutoff yield on the 7-year bond was set at 6.43 per cent, reflecting strong demand, said dealers.

 

“The key change from the last auction (when the 7-year paper got cancelled) to this auction is demand has improved. This time, yields aligned with market expectations. Sentiment shifted after the Reserve Bank of India (RBI) governor suggested a rate cut was on the cards, leading markets to anticipate lower rates ahead. That expectation helped boost demand,” said a dealer with a private bank.

 

The RBI had cancelled the sale of a 7-year central government bond on November 9 after investors sought yields around 6.50 per cent — which were higher than those on the new 10-year bond — levels the central bank found unacceptable.

 

Market participants said that yields were largely in line with market expectations while the green bond outperformed forecasts, attracting sufficient bids and seeing its cutoff settle near prevailing market levels, with LIC taking the entire green tranche.

 

“Yields were broadly in line with market expectations. The green bond performed better than anticipated, receiving sufficient bids, and its cutoff was near the market level, with LIC taking the entire green tranche. Three major factors supported the market: first, the RBI’s secondary open market operations (OMO) on-screen participation; second, the auction cancellation, which signalled some discomfort with higher yields; and third, the RBI governor’s dovish commentary. Together, these made market conditions more comfortable than before. The 7-year segment also saw a healthy bid-cover ratio, with strong demand across the board,” said a dealer with a primary dealership.

 

On the other hand, the rupee witnessed its worst month since July, depreciating by 0.8 per cent in November so far. The local currency fell by 0.17 per cent on Friday to settle at 89.46 per dollar.

 

“The rupee has month-end dollar demand pressure while the RBI is selling dollars to avoid the local currency from breaching the record low,” said a dealer at a state-owned bank.

 

The domestic unit is the worst performing Asian currency, witnessing 4.3 per cent depreciation so far in November. The rupee had slumped to a fresh low of 89.54 per dollar on November 21 as the US sanctions on an Indian firm for buying Iranian crude, and a delayed trade deal weighed on market sentiment.