For a better experience, Read this story in our App
TO ENJOY ADDITIONAL BENEFITS
Connect With Us
Get BusinessLine apps on
The Reserve Bank of India on Wednesday partially devolved the auction of the 10-year benchmark Government Security (G-Sec) on primary dealers as market players wanted to buy the paper at lower than prevailing market price.
Out of the notified amount of ₹13,000 crore raised via auction of the 10-year G-Sec, RBI devolved about 12 per cent on primary dealers (PDs). This was the first auction of the 10-year G-Secs in FY23.
PDs are financial intermediaries that function as a link between the debt manager and investor, and provide liquidity in the secondary market. As the underwriters at G-Sec auctions, they absorb the devolved amount.
The cut-off yield that emerged at the auction of the 10-year paper was about 5 basis points higher at 7.2446 per cent vis-a-vis previous closing yield of 7.1918. The cut-off price at this yield was 35 paise lower at ₹95.12 from previous close of ₹95.47.
“Some market players would have bid the 10-year paper at a higher yield (7.25 per cent). But the central bank may have been uncomfortable with the yield at this level. Hence, it partially devolved the paper on PDs,” said the treasury head of a private sector bank.
Market players demanded higher yields/wanted to buy at lower prices at the G-Secs auction due to fears that rising retail inflation may prompt the central bank to kick-start the tightening cycle in its June policy review. Bond yields and prices are inversely co-related and move in opposite directions.
Besides the 10-year paper, the government sold three other papers — 4.56 per cent GS 2023 (₹4,000 crore); New GS 2029 (₹7,000 crore) and 6.95 per cent GS 2061 (₹9,000 crore) — at the auction. Auction of these three papers sailed through.
“March CPI inflation surged to 6.95 per cent led by a broad-based increase in food and core inflation. Persistence of high commodity prices amid supply-chain disruptions and resurgence in Covid cases globally will likely weigh on the inflation trajectory.
“Upward surprise in March inflation seals the case for a shift in the MPC’s stance to neutral in the upcoming June policy. We now pencil in first repo rate hike of 25 basis points (bps) in the June policy and cumulative hike of 100 bps in FY2023E,” said a Kotak Securities report.
Meanwhile, yield of the 10-year G-Sec rose about 2 basis points on Wednesday to close at 7.2148 per cent (previous close: 7.1918 per cent). Price of this paper declined 15 paise to ₹95.32 (₹95.47).
Published on April 13, 2022
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.