Five-year paper auction sails through on aggressive bidding

The five-year benchmark 7.55 per cent government stock 2010 auction was oversubscribed by over 3.5 times today with the Reserve Bank of India receiving bids worth Rs 21,535 crore against the notified amount of Rs 6,000 crore.

The other stock "" 7.50 per cent 2034 for a notified amount of Rs 2,000 crore "" was picked by insurance majors and trusts and funds and got auctioned at a cut-off yield of 7.97 per cent.

According to bond dealers, the enthusiasm and aggressive bidding by banks and traders for grabbing the benchmark five-year paper resulted in a drop in the cut-off yield to 6.99 per cent as against a market expectation of 7.05/10 per cent.

"The paper was well bid and RBI hinted a relatively softer rate than expected," said a dealer. The RBI received 387 bids. It accepted 68 bids for the five-year stock. After the auction, the paper was traded at a premium and the yield came off to 6.92 per cent.

According to dealers, the government securities market might see a good trading interest on Wednesday.

According to market, this was the most well bid auction in the new financial year. The first paper 6.85 per cent 2012, though got fully subscribed, offered a very high cut-off yield after which the paper was sold at a discount in the market. The second paper 8.07 per cent 2017 was well bid but only primary dealers and few banks had participated in the auction.

In the current market situation, banks have been staying away from the market as they have government securities in excess of the stipulated 25 per cent of the statutory liquidity ratio.

Currently, banks maintain an average of 38 per cent of the SLR portfolio. Therefore, the RBI is proposing to come out with short-term securities which will help banks reduce the duration of their portfolio.

In the process it will bring down the risk which the increasing interest rate scenario poses on the investment portfolio of the banks, said a source.

CBLO volumes touch Rs 8326 cr

The collateralised borrowing and lending obligation (CBLO) market clocked a record volume of Rs 8,326 crore, beating its past highest volume of Rs 7,615 crore on March 30.

According to market dealers, funds are available cheap at 4.7/4.8 per cent in the CBLO market, while call rates have gone up to 5 per cent after the reverse repo rate hike in the recent credit policy.

Moreover, with gradual phasing out of non-banking lenders from the call market, non banking entities with surplus funds are flocking the CBLO market.