The Reserve Bank of India set the cut-off yields of the twin auction of Rs 6,000 crore well below the market rates. The cut-off yield of the 10-year paper was pegged at 9.39 per cent as against the secondary market yield of 9.51 per cent, while the cut-off price for the 10.45 per cent 2018 paper was Rs 105.48 (equivalent to a yield of 9.7763 per cent) as against the market price of Rs 105.43 (equivalent to a yield of 9.80 per cent).
With today's auction, the RBI has completed more than 47 per cent of the gross government borrowing programme worth Rs 1,19,970 crore.
Dealers said the RBI had signalled the interest rate to soften further by setting very low cut-off yields. A dealer said: "Everybody expected cut-off yields to be lower than the market rate, but for the 10-year paper the cut-off yield was even lower than the expected level."
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The ample liquidity on account of redemption of government securities and the huge deposit mobilisation of commercial banks helped both the issues to be highly oversubscribed.
The central bank received 303 bids of Rs 11,080.84 crore for the 10-year paper, of which it accepted 102 bids of Rs 4,000 crore. The weighted average of the bids accepted were 9.37 per cent.
The apex bank received 223 bids of Rs 5,235.954 crore for the 10.45 per cent 2018 paper, of which it received 42 bids of Rs 2,000 crore. The weighted average price of the bids accepted were Rs 105.55.
"Oversubscription was expected because of the comfortable liquidity, which is likely to remain so next month as well, because of the huge inflow on account of redemption and coupon payments on government security."