The government managed to raise only about 44 per cent of the total notified amount of ₹24,000 crore it intended to raise at the Friday weekly auction of four government securities (G-Secs), with the Reserve Bank of India (RBI) rejecting all the bids it received at the auction of two papers.

Rejection of the bids instead of devolving the auction on primary dealers perked up the G-Sec (GS) market sentiment as yield of the new and erstwhile 10-year paper softened by about a basis point (price up about 8 paise) and two basis points (price up about 12 paise).

Bond yields and prices are inversely co-related and move in opposite directions.

RBI rejected all the bids for the 5.74 per cent GS 2026 (notified amount: ₹6,000 crore) and 6.67 per cent GS 2035 (₹9,000 crore). It accepted all the bids for the 4.56 per cent GS 2023 (₹2,000 crore).

In fact, the government raised ₹8,525 crore via auction of the 6.99 per cent GS 2051 against the notified amount of ₹7,000 crore.

Madan Sabnavis, Chief Economist, Bank of Baroda, noted that both long and short end yields are heading north.

“Notably, sharp increase in centre’s borrowing plan to ₹14.95 lakh crore in FY23 from ₹10.46 lakh crore in FY22, have impacted 10-Year yield sharply. Post Budget, it went up by 21 basis points (bps).”

“90 per cent of the fiscal deficit will now be financed through gross market borrowing - a phenomenon last seen in FY18,” Sabnavis said.

Apart from this, global factors such as indication of starting of rate hike cycle by Fed Chair, consecutive hike of policy rate by Bank of England (+50 bps), all have put upside pressure on bond yields.

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