The Hindu Business Line : RBI rejects all bids in Rs 6,000 cr auction

According to market players, the yields quoted were higher than RBI's expectation and the central bank did not want to devolve it either on itself or on primary dealers.

According to the head of a securities trading firm, the appropriate level from RBI's point of view would have been around 7.10-7.15 per cent, as it was a high coupon paper. "But most of the bids went above the 7.30 per cent level and may have even touched 7.40-7.45 per cent levels," he said.

The bond markets saw this as a good sign and prices closed higher by around 75 paise after the announcement. During the day, the market was nervous due to talk that the auction would get devolved on PDs.

"Perhaps the dealers demanded higher yields as they wanted their pound of flesh," the dealer said.

The market was not anticipating this auction, said another bond dealer, as the paper was illiquid and was part of the `held to maturity' category of banks' G-Sec portfolio. "Banks would have to provide for amortisation at the end of the year and they cannot afford it," he said.

For the past few weeks bond prices have been sagging on fears of a rate hike in the upcoming monetary policy. The cancellation of the auction is being seen as a signal that the government does not want yields to harden and therefore is a welcome move, market players said.

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