Bonds jerk up as Centre cancels auction

In what has brought great comfort to the government securities market, the Reserve Bank of India (RBI) today announced the cancellation of the Rs 5,000 crore bond issue, scheduled to take place between November 16 and 24.

Government securities prices rallied by as much as 50 paise today after the RBI announcement, which came just 25 minutes before the close of trading. "This indicates that the Government is also concerned about the tightening liquidity in the market and does not intend to make it worse by conducting an auction," said a bond market dealer.

On Wednesday a finance ministry official had stated that the Government had surpluses of Rs 31,000 crore with the Indian central bank. He had also indicated that the Indian government had not yet taken a decision on whether to cancel, postpone or go ahead with the scheduled bond auction scheduled for this month.

Said Anil Ladha, senior vice president, I-Sec, "The auction cancellation is merely a reflection of the comfortable cash balances of the Government. The market has derived a temporary bullish sentiment from this move."

Dealers say even the next auction of Rs 8,000 crore scheduled to take place in the first week of December could be cancelled if the Government's cash position continues to be comfortable.

Earlier this year in April the Government cancelled a Rs 5,000 crore auction. It also cancelled the floatation of treasury bills under the market stabilisation fund as liquidity conditions have seen to be tightening in recent times.

From the highs of surplus liquidity of Rs 50,000 crore a few months back the RBI is now injecting liquidity of over Rs 10,000 crore of late through the repo window. It injected funds to the extent of Rs 17,235 crore today through this window.

The 7.38 per cent 2015 paper today rallied about 50 paise to close at Rs 102.00 and a corresponding yield of 7.11 per cent up from Wednesday's close of 101.50/60. The inter-bank call money rates were tight today in line with recent days at 6.00-6.25 per cent.