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Bonds remain unsold at RBI auction for third time in 4 weeks.

Date: 12-09-2020
Subject: Bonds remain unsold at RBI auction for third time in 4 weeks
MUMBAI: A central bank auction of sovereign bonds didn’t find buyers for a chunk of the debt on offer at reasonable rates for the third time in four weeks, indicating that Mint Road will seek to lower yields that have remained uncomfortably firm despite policy rate reductions and spot measures.

Bond houses took about Rs 17,970 crore worth of unsold papers on their books as Mint Road did not oblige elevated yields that traders sought in the primary bond sale Friday. The central bank accepted just one competitive bid of Rs 25 crore at 6.02 percent.

“Clearly, the RBI is not comfortable with yields above 6 percent,” said Siddharth Shah, Head–Treasury, Senior Vice President, STCI Primary Dealer. “The market is ignoring the central bank’s signals. The authorities will have to come out with a plan to revive the waning investor appetite and check rising funding costs.”

New Delhi’s gross market borrowing has jumped to Rs 12 lakh crore this financial year from Rs 7.80 lakh crore estimated earlier.

Cash-strapped states are going deeper into debt to provide for the rising economic cost of the coronavirus.

This financial year, state governments and two union territories have cumulatively raised Rs 2.97 lakh crore via market borrowings, which is 51% more than the amount they had raised in the corresponding period last financial year, show data from CARE Ratings.

The benchmark bond yield dropped to 5.89 percent at the beginning of the month after touching a high of 6.22 percent in August. The RBI announced new liquidity measures and relaxation in mark-to-market rules on September 1 after a spike in the benchmark yields, which increased funding costs for both governments and corporates.

Besides, RBI purchased long term bonds worth Rs 40,000 crore in four tranches from the market and sold equivalent quantum of shorter duration papers recently. This is known as Operation Twist in market parlance.

The RBI Friday planned to sell Rs 30,000 crore of four sets of sovereign bonds across different maturities. One of them was floating rate bond maturing in 2033. The 10-year benchmark paper series introduced recently did not find buyers at yields commensurate with the central bank’s expectations.

“Banks are not in a hurry to buy bonds after the RBI raised the HTM limits as they seek more clarity on its timeline” said a government bond dealer.

On August 28, Rs 17,984 crore worth of the same benchmark paper devolved following another such weekly auction on August 14, when about a fourth of the Rs 30,000-crore worth of bonds could not find buyers.

RBI raised the Held-to-Maturity limit to 22 percent from 19.50 percent leaving space for banks that can buy bonds without the obligation to mark them to current market levels. But this applies for papers that are bought between September 1 this year and March 31 next year.


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