The central government has announced an auction of 6 year paper for Rs 4,000 crore on May 8. The auction is the fourth the government has come out with in the current year as part of its gross borrowing programme of Rs 86,000 crore.
Although there was no announcement of a cut in cash reserve ratio in the credit policy, the system is still flush with funds. As of yesterday, there is around Rs 7,500 crore locked up in the fixed rate repos conducted by the Reserve Bank of India (RBI).
The central government has, till date, already raised Rs 17,000 crore which amounts to nearly 20 per cent of the total borrowing programme. It had come to the market thrice in April with auctions of 5-year, 8-year and 10-year papers, and also privately placed Rs 5000 crore with the RBI.
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The three earlier auctions had met with a mixed response. The 5 year paper was oversubscribed and the implicit cut off yield was fixed at 11.10 per cent. At the auction of 10 year paper, more than half the issue amount devolved because the implicit cut-off yield was fixed lower than what the market had expected.
The latest issue of 10 year paper was again oversubscribed with no devolvement, and the cut-off at 12 per cent was in line with market expectations. Significantly, the new issue had also come a day after the credit policy which had lowered the bank rate by 100 basis points. In the secondary market, the six year paper is currently being traded at an yield of 11.35-40 per cent.