Mumbai: The Reserve Bank of India (RBI) failed to sell all its shorter maturity government bonds in Friday’s weekly auction for the fourth time in a row, indicating a weak appetite for securities despite a slew of regulatory measures.

The central bank could only sell Rs81 crore of 2022 maturity government bonds out of the Rs3,000 crore on offer. The remaining amount was devolved on primary dealers, underwriters of government debt. This is also the second devolvement since RBI on 27 April allowed foreigners to buy shorter maturity bonds.

Typically, devolvement of bonds signals two things—weak demand and RBI’s unwillingness to auction bonds at higher yields.

According to bond dealers, there is muted demand from state-owned banks, which had suffered losses on their bond portfolio and had to make mark-to-market provisioning to cover these losses. They are also selling shorter maturity bonds to book profits. This led to the formation of an inverted yield curve, where the yield of shorter maturity paper is higher than longer ones.

Bond yields and prices move in opposite directions.

Since 1 April, the yield on the 10-year benchmark government bond has risen by 33 basis points. On Friday, it closed at 7.73%. One basis point is a hundredth of a percentage point.

Additionally, fears of a rate hike by the RBI have gained further ground because of a rise in crude oil prices, which has also led to depreciation of the local currency.

“Having burned their fingers, there is very little risk tolerance among banks to buy bonds because there is no certainty if yields will fall. On the other hand, foreign investors are cautious because of fall in the rupee against the dollar as it eats into their returns," said Soumyajit Niyogi, associate director at India Ratings and Research.

The rupee has weakened over 5% since the start of 2018.

The devolvement of bonds comes at a time when the RBI is set to buy government bonds worth up to Rs10,000 crore on 17 May under its open market operations, which led to a fall in yields. However, the fall was not sustained and yields again started inching upwards.

Among other easing measures, the RBI in April increased the limits for FPIs to buy Indian bonds and also allowed banks to spread the provisioning for losses on their bond portfolios over four quarters.

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