The twin open market operation (OMO) auction of Rs 3,500 crore -- Rs 2,000 crore of 11.98 per cent 2004 and Rs 1,500 crore of 11.90 per cent 2007 paper -- conducted today was oversubscribed by more than 52 per cent.
Encouraged by this response, the Reserve Bank of India (RBI) seemed to be on OMO overdrive as it has decided to sell 8.07 per cent 2017 and the 10.18 per cent 2026 paper at fixed prices tomorrow.
The cut-off price for the 11.98 per cent 2004 auctioned today was pegged at Rs 110.85 equivalent to an estimated yield of 6.42 per cent. The central bank received bids of Rs 3,430 crore for a notified amount of Rs 2,000 crore.
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The cut-off price for the 11.90 per cent 2007 was set at Rs 121.00 equivalent to an estimated yield of 6.74 per cent. The cut-off yields of both the paper was in line with the secondary market yield.
In tomorrow's open market sale, the RBI will sell the 8.07 per cent 2017 paper at Rs 103.02 while the for 10.18 per cent will be sold at Rs 121.85. The estimated yield at these prices are 7.72 per cent and 8.10 per cent, respectively.
Money market dealers feel that the repeated OMO by the RBI is a signal that the central bank is not comfortable with the current liquidity overhang in the system. The liquidity overhang was reflected in huge repo bids.
In today's repo auction the apex bank, partially accepted 21 bids of Rs 22,416 crore. The average daily outflow through the repo window has been over Rs 20,000 crore in the last seven days. The repeated open market operation is expected to keep the government paper yields range-bound.
Money market dealers, however, said that the tomorrow's open market operation is not likely to receive good response.
Said a dealer: "Except for the insurance companies, nobody is interested in such a long-term paper. They may purchase Rs 1,500 crore - Rs 2,500 crore of the securities, but the banks will not touch these papers."