Home >Industry >Banking >Bond yields fall after RBI's bond auction devolves

Mumbai: Bond yields fell after Reserve Bank of India did not accept any bids for 10 year bond sale at Friday’s auction. The yield on 10 year benchmark touched a high of 6.176% during intra-day reacting before closing at 6.088%, 4 basis points down from the previous close of 6.127%.

The central bank had planned to sell 14,000 crore of 10 year bonds. This was part of the 26,000 crore of auction of three bonds. However, the central bank devolved the entire amount on primary dealers as it refused to pay the higher yield sought by them. When underwriters of bonds, mostly primary dealers, are forced to buy the unsold bonds, it is called devolvement.

Of the three government bonds to be auctioned on Friday, two devolved partially. These were the 10 year bond and 6.76% 2061 for 2764 crore. However, more than 5000 crore of 3.96% 2022 was bought, which was more than the notified amount of 3000 crore. The Central Government borrowed only 11,326 cror in this week’s scheduled auction.

RBI’s decision to devolve the bonds was expected after the central bank bought 25,000 crore of securities from the secondary market, in the first tranche of its Government Securities Acquisition Plan (G-SAP 1.0), at yields higher than the market expected.

The cut-off yield on 10-year bonds was fixed at 6.0317% against 6% estimated in a Bloomberg survey. This sent out a signal that the central bank is not worried about higher yields.

The bond market was expecting RBI to devolve the auction on primary dealers after it is forced to sell the 10-year paper at a higher yield.

Last week of the four G-secs out up for auction, RBI had devolved the bonds maturing in 2026. Of the notified amount of 11,000 crore, underwiters had to absorb 10,926.29 crore worth of the paper.

So far in FY22, the total gross market borrowings of the Central government stands at 49,179 crore, which is marginally higher than 34,000 crs in FY21. For the fiscal, the Central government has budgeted for total gross market borrowings of 12 lakh crore, out of which 7.24 lakh crore will be raised in the first half. This is 60% of the total gross market borrowings for the fiscal. In FY21, the total gross market borrowings of the Central government stood at 13.7 lakh crore.

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