The Reserve Bank of India (RBI), which is fighting to cool bond yields, refused to pay the high yields demanded by investors at Friday’s auctions, leading buyers to steer clear of the ₹Sale of bonds of 18,000 crore. For the second time in two weeks, primary dealers who subscribe to bond auctions stepped in to buy then.
In a press release, the central bank said that primary traders had bought bonds worth ₹17980 crore, while only ₹16.2 crore of bonds were sold to others.
The government planned to sell the bonds maturing in 2030 bearing a coupon of 5.77% at a threshold yield of 6.1448%, against BloombergEstimate of 6.22%.
The result of Friday’s auction is a repeat of August 14, when ₹4,650 crore of 10-year bonds remained unsold, despite banks sitting on excessive liquidity.
“RBI had decided to delegate the auction because they are not comfortable with the current returns. Operation Twist took place at 6.15% on Thursday and had RBI agreed to sell G-sec at 6.22% today, yields would have climbed to that level. So RBI did the right thing. He will have to be more aggressive with higher open market operations or Operation Twist going forward to ensure that returns cool, ”said the treasury official of a public sector bank.
The yield on the benchmark 10-year bond closed at 6.14% on Friday, down 1 basis point from its previous close.
Over the past four weeks, yields have risen 36 basis points amid fears that retail inflation could cross 7% in three months, even as the economic recovery lags.
“This may be the first time that the entire auction has gone to PDs. We do not know what the rationale for this government and RBI decision is. This will mean that RBI will have to do more OMO and Twist trades to cool returns, ”said A. Prasanna, chief economist, ICICI Securities PD.
On Thursday, the RBI conducted another Operation Twist, agreeing to simultaneously buy and sell government bonds for ₹10,000 crore.
The central bank is issuing a new edition of this program on September 3.
Typically, the central bank performs OMO sales to drain liquidity from the financial system and OMO purchases to inject liquidity.
As part of Operation Twist, RBI will purchase securities with tenures ranging from 4 to 12 years and sell short-term securities maturing in October and November.