Flush with liquidity, insurance companies, provident fund trusts and banks on Thursday bid aggressively at the auction of four Central Government securities aggregating ₹20,000 crore.

Market players, especially insurance companies and provident fund trusts, bid for the securities at about 20-30 paise higher than their ruling market prices as they had received proceeds aggregating about ₹40,000 crore from the redemption of securities on Wednesday.

The Government raised ₹20,000 crore through the issue of four securities with maturity periods of eight, 13, 16 and 29 years.

Aggressive bidding

The aggression in the bidding is underscored by the fact that the cut-off price of the eight-year security (carrying interest rate of 8.35 per cent), for instance, came in at ₹95.45 against the April 4 auction cut-off price of ₹94.78.

The yield-to-maturity, which is the expected rate of return on a bond if it is held till maturity, for this security worked out to 9.1585 per cent (9.2778 per cent in the earlier auction). The yield of a bond is inversely related to its price.

The treasury head of a public sector bank said insurance companies and PF trusts invested big-time in the four securities.

Short-covering

A bond trader with a public sector bank said “short-covering by traders for the long weekend lead to a spike in bond prices. However, the rally in the secondary market may not sustain due to higher inflation and continued supply pressure (due to Government auctions).”

Government securities are tradable instruments issued by Central/State Government. It acknowledges the Government’s debt obligation.

Since the beginning of the current financial year, the Government has raised ₹52,000 crore through three auctions.

During the first half of the current financial year, the Government plans to mop up ₹3,68,000 crore through auction of Government securities.

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