RBI cancels bids for Rs 11,000-cr bonds

The Reserve Bank of India (RBI) on Friday refused to accept bids for Rs 11,000 crore worth of bonds in the final auction of this calendar year.

In all, four bonds for Rs 15,000 crore were on offer. Bids for two bonds--one maturing in 2022 (Rs 3,000 crore on offer) and another in 2031 (Rs 8,000 crore)—were rejected by the central bank. It sold the remaining two bonds worth Rs 2,000 crore each and maturing in 2033 and 2046.

The signal from the RBI has been that high yields would not be acceptable to the central bank or the government. Also,  and that the yield movement have been over the top in a short span.

The decision not to accept bids for two bonds addressed some of the market concerns related to liquidity after the government announcement  on Thursday that it was going for additional borrowing of Rs 50,000 crore. 

"The partial cancellation of the auction means that the government has a comfortable cash position and is unwilling to pay high coupons," said Piyush Wadhwa, head of trading at IDFC Bank. Following the auction results, bond yields fell 15 basis points to 7.25 per cent in the intraday, before climbing back to close at 7.33 per cent, from its previous close at 7.40 per cent.

This is a marginal relief for banks as they will now have to provide lower nominal losses on their bond portfolio. Nevertheless, considering the 10-year bond yield was at 6.648 per cent at the start of the quarter, the yield movement is still at 68 basis points in the quarter. The bank treasury, therefore, will have to take a hit on their books.

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