Money & Banking

OMO auction: RBI shows it means business

Our Bureau Mumbai | Updated on September 04, 2020 Published on September 03, 2020

Bond price and yield are inversely correlated   -  Bloomberg

Sets an aggressive cut-off yield of 5.8680 per cent

 

The Reserve Bank of India (RBI) on Thursday gave a clear indication in the Open Market Operation (OMO) – Purchase and Sale – auction that it does not want Government Security (G-Sec) yields to go up.

It accepted bids for the earlier 10-year benchmark G-Sec at the OMO auction, entailing simultaneous purchase of G-Secs and sale of Treasury Bills, at a cut-off yield of 5.8680 per cent, which was about 4 basis points lower than Wednesday’s last traded yield of 5.9106.

The cut-off price on this G-Sec at the auction was 31 paise higher at ₹99.42 against Wednesday’s last traded price of ₹99.11. Bond price and yield are inversely correlated, moving in opposite directions.

The central bank did not accept the offers it received for the purchase of two other papers — 7.72 per cent G-Sec 2025 and 6.79 per cent 2027 G-Sec.

RK Gurumurthy, Head of Treasury, Lakshmi Vilas Bank, said: “The central bank rejected offers for two of the three securities in the OMO purchase auction. It accepted offers for only one security — the earlier 10 year benchmark paper, which is still highly liquid.”

Gurumurthy observed that the cut-off yield on the earlier 10 year benchmark at Thursday’s OMO auction is RBI’s signal to the market that yields cannot go up. The central bank’s strategy seems to be that if it addresses one or two securities, yields across the curve will fall in line, he added.

The OMO auction, entailing simultaneous purchase of G-Secs and sale of Treasury Bills for ₹10,000 crore each, saw total offers (to sell securities to RBI) of ₹72,621 crore at the OMO purchase. The RBI accepted offers aggregating ₹7,132 crore.

The central bank received bids (to buy three Treasury Bills) aggregating ₹41,350 crore at the OMO sale auction. It accepted bids aggregating ₹10,000 crore.

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Published on September 03, 2020
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