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The first auction of the new financial year, FY15, devolved partially on primary dealers due to lack of appetite. The partial devolvement signals that there is a need for an open market operation (OMO) purchase of government securities so that the auctions sail smoothly.
The Reserve Bank of India (RBI) was selling four government securities for a notified amount of Rs 16,000 crore. There was partial devolvement in the longest tenure paper, for Rs 864 crore.
“There is less demand for bonds due to rising yields. There is a need for OMOs to support the auctions. Banks are not willing to buy bonds because they do not want to incur mark-to-market (MTM) losses,” said Balginder Singh, government bond dealer with Andhra Bank.
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The yield on the 10-year benchmark government bond 8.83 per cent 2023 ended at 9.07 per cent on Friday, compared to the previous close of 9.01 per cent. On Friday, the yield ended at a level, previously seen on November 22 at 9.10 per cent.
Besides banks, even insurance companies and fund houses are staying away from bond buying. “There is low appetite for bonds right now. Fund houses are not seeing flows in long-term funds, due to which their participation in these auctions is low,” said Dwijendra Srivastava, head of fixed income at Sundaram Mutual Fund.
The four bonds in Friday’s auction were 8.35 per cent 2022 for Rs 4,000 crore, 8.28 per cent 2027 for Rs 7,000 crore, 9.20 per cent 2030 for Rs 2,000 crore and the 9.23 per cent 2043 paper for Rs 3,000 crore, which saw partial devolvement.
In the first half of 2014-15, the government would borrow a gross Rs 3.68 lakh crore, 61.6 per cent of the full-year target.
