Money & Banking

In a first this fiscal, 10-year G-Sec auction witnesses partial devolvement

Our Bureau Mumbai | Updated on August 15, 2020

Total size of auction - ₹18,000 crore; amount devolved - ₹4,638 crore

The auction of the benchmark 10-year Government Security (G-Sec) carrying a coupon rate of 5.77 per cent on Friday to raise ₹18,000 crore saw partial devolvement on primary dealers (PDs).

This is probably the first time this financial year that a 10-year G-Sec, considered the most liquid paper in the debt market, has partially devolved on PDs.

Devolvement occurs when the cut-off price set by the RBI is not as per market expectations or the RBI rejects the bids which are not in sync with its cut-off price.

Against the notified amount of ₹18,000 crore for the 10-year G-Sec, the central bank received 343 bids aggregating ₹37,780 crore.

It accepted 167 competitive bids aggregating ₹13,346 crore at a weighted average price/ yield of ₹98.63/ 5.9539 per cent.

Devolvement on the PDs was at ₹4,638 crore. PDs are entities which offer two way quotes with bidding commitments in the auction of dated securities and Treasury Bills.

Bond market expert K Boovendran said: “The underwriting commission paid to PDs was 74 paise. It amounts to about 10 basis points.

“Had the cut-off yield been increased by 10 basis points to 6.0634 per cent, probably there would not have been any devolvement. The yield on the security would also be nearer to reasonable level.”

The other three auctions — 5.09 per cent G-Sec 2022 (for raising ₹3,000 crore), GOI Floating Rate Bond 2033 (₹4,000 crore), and 7.19 per cent G-Sec 2060 (₹5,000 crore) — sailed through.

Greenshoe option of ₹2,000 crore each was exercised in 5.09 per cent G-Sec 2022 and 7.19 per cent G-Sec 2060.

Published on August 15, 2020

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