Two gilt auctions devolve, one called off.
Bond yields continued to march upwards on oversupply concerns, while two of three government bond auctions saw devolvement on primary dealers on Friday. Yields on the new 10-year benchmark government bond touched a 39-month high of nine per cent in intra-day trade, before closing at 8.94 per cent on Friday.
Barring one week, there has been devolvement in at least one paper since the commencement of the second-half borrowing plan.
The Reserve Bank of India (RBI) on Friday auctioned Rs 13,000 crore of government securities, including a new security of 13-year maturity, which saw devolvement of Rs 1,505 crore. The cut-off yields were at 9.15 per cent. “Currently, the markets are grappling with high supply. Yields will have the tendency to go higher if high supply continues in the absence of open market operations (OMOs),” said Piyush Wadhwa, executive director & head, rates trading, at Nomura.
Market participants are expecting support from the RBI in the form of a bond buyback. But, RBI deputy governor Subir Gokarn on Friday said the central bank would look at the liquidity position before deciding on OMOs. “The central bank should see to it that fatigue does not set in at this time, as there is huge supply to follow,” said a senior treasury official of a public sector bank.
There was devolvement of Rs 861 crore in the paper maturing in 2040, while the auction of the paper maturing in 2017 did not go through. “With the fiscal position in bad shape, there is no demand for government paper currently,” said a bond dealer with a primary dealership firm.
There were auctions on each day of the holiday-shortened three-day week. The central government borrowed Rs 25,634 crore against Rs 36,000 crore notified via treasury bills, cash management bills and long-dated papers. Eight state governments borrowed around Rs 6,000 crore this week.
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Yields on the new 10-year government benchmark bond issued at 8.79 per cent moved up 15 basis points this week. The government is scheduled to borrow Rs 2.2 lakh crore in the second half, higher than the Rs 1.67 lakh crore budgeted earlier.
Meanwhile, the rupee touched a 32-month low against the dollar in intra-day trade to close at 50.12, six paise higher than the previous close.
Gokarn said the central bank had not intervened to arrest the fall in the rupee, though market participants suspected otherwise. According to the Bombay Stock Exchange, there were net fund outflows of Rs 83 crore as both the Sensex and the Nifty fell around one per cent on Friday.
Liquidity tightens, banks borrow Rs 1.27 lakh cr from RBI repo window
Banks faced liquidity shortage and borrowed heavily from the repo window of the RBI. Banks borrowed Rs 1.27 lakh crore from the central bank, the highest in the current financial year. Liquidity deficit in all the three working days of the week was higher than the RBI’s comfort level of Rs 50,000 crore.