Money & Banking

Auction of five-year G-Secs devolves on primary dealers

Our Bureau Mumbai | Updated on July 30, 2021

‘Reflects the difference in market expectations on cut-offs and implied yields’


The auction of the five-year Government Security (G-Sec) devolved on primary dealers (PDs) on Friday to the tune of 68 per cent of the notified amount, indicating the central bank’s discomfort with market players bid to buy the paper at lower price.

The auction of the remaining three securities sailed through. At the auction of the G-Sec/GS 2026 (coupon rate: 5.63 per cent), against the notified amount of ₹11,000 crore, the RBI devolved ₹7,465 crore on PDs.

The cut-off price on the aforementioned GS was lower at ₹99.53 (previous closing price: ₹99.62) and yield was higher at 5.7433 per cent (5.7210 per cent), respectively. Bond yields and prices are inversely related and move in opposite directions.

In the secondary market, this paper closed about six paise higher vis-a-vis the auction cut-off, with the yield thawing about 2 basis points.

The government raised ₹5,000 crore (including ₹1,000 crore greenshoe amount) via auction of the Floating Rate Bond maturing in 2033; ₹12,000 crore (including ₹2,000 crore greenshoe amount) via auction of GS 2035 (6.64 per cent); and ₹7,000 crore via auction of GS 2050 (6.67 per cent.

The price of the benchmark 10-year G-Sec maturing in 2031 (6.10 per cent) declined about 5 paise to close at ₹99.23 (₹99.28), with its yield rising about a basis point to 6.20 per cent.

Madan Sabnavis, Chief Economist, CARE Ratings, observed: “The government was able to raise ₹35,000 crore with the additional greenshoe option of ₹3,000 crore being accepted for 2 of the 4 papers that were issued. However, for the 5-year 5.63 per cent 2026 paper, which went with a cut-off 5.74 per cent, ₹7,465 crore devolved on the PDs.”

Sabnavis emphasised that the devolvement on PDs again today is reflective of the difference in market expectations on cut-offs and implied yields.

With this devolvement, the total devolvement so far this year is around ₹75,800 crore, while total issuances have been ₹4.96-lakh crore, he added.

Published on July 30, 2021

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