RBI springs a surprise, lifts yields at auctions

The government securities market received a jolt today when the Reserve Bank of India (RBI) lowered the cut-off prices "" thereby lifting yields "" at the auction of 364-day treasury bills and the 6.18 per cent 2005 stock.

The RBI lowered the cut-off price at Wednesday's two-weekly auction of 364-day treasury bills to Rs 94.89 from Rs 95.58. This translated into a yield of 5.4 per cent from the earlier 4.6371 per cent.

In the process, there was a devolvement of around Rs 249 crore in the 364-day paper as the RBI accepted bids amounting to Rs 1,751 crore as against a notified amount of Rs 2,000 crore.

The cut-off led to a fall in the prices of securities across maturities by about Re 1 "" and lifted yields.

The yield on benchmark 10-year yield closed at 6.60 per cent against yesterday's closing level of 6.50 per cent.

The auctions were held for a total notified amount of Rs 9,000 crore out of which it could mop up Rs 8,751 crore. According to market players, the signal implies that the RBI is comfortable in borrowing money at 5.4 per cent for one year.

They added that this was part of the auction for the market stabilisation scheme and not government borrowing. Therefore, the RBI could have rejected the bids they said adding that the basic purpose was to absorb the liquidity.

However, a treasury head with the PSU banks said that the rates should not be analysed for long term perspective as the cut-off price purely depends on the market. Incidentally, the total outstanding liquidity in the system is too high at around Rs 70,000-75,000 crore today, he added.

The liquidity in the system is high with repo bids to one-day repo amounting to Rs 20,000 crore. However, market players said there would be lesser number of bids tomorrow as the auction payments are slated for Thursday.