12-year floating rate bonds fetch lower cut-off

The auction of two government papers "" the 12-year floating rate bond (FRB) and the 24-year security "" has been cleared at a lower cut-off rate compared with the market rates. This is despite a bearish sentiment prevailing in the market.

While the re-issue of the 6.01 per cent 2028 paper was auctioned at a yield of 5.79 per cent as against the market yield of 5.81 per cent, the spread on the FRB was much lower at four basis points.

Dealers said the market had expected a spread of 8-10 basis points for the FRB.

According to dealers, the wide gap between the market rates and the cut-off yield reflect a nervousness among market players who are aggressively bidding to bring down the rates to ensure a soft rate regime.

However, going by the proceedings of the Federal Reserve and other central banks, there is a prevalent view in the market that rates are poised for a hike.

Both the auctions have been heavily subscribed with the RBI receiving 127 bids for Rs 17,140 crore for a notified amount of Rs 6,000 crore in the 12-year FRB and 173 bids for the Rs 6,791 crore 24-year paper against a notified amount of Rs 3,000 crore.

However, it accepted only 16 bids for a total of Rs 2,945 crore through competitive bids for the 24-year paper while 18 bids were accepted for a total amount of Rs 5,989 crore for the 12-year paper.

While the FRB was underwritten by primary dealers to the extent of Rs 3,050 crore, the 24-year security evoked much less underwriting to the tune of Rs 1,250 crore.