G-secs worth Rs 11,000 crore remain unsold in first auction of FY22

MUMBAI: Government securities (G-secs) worth nearly Rs 11,000 crore remained unsold in the first gilt auction of fiscal 2022. This indicates a revival of the tug of war between traders, who want higher yields, and the central bank which wants the opposite. Similar actions were seen during the last four months of the previous financial year.
On the positive side for the government bond market, the benchmark yield on the 10-year gilts closed marginally softer at slightly below the 6.02% level.
In Friday’s G-sec auction, Rs 10,926 crore worth of bonds maturing in 2026 remained unsold (also called devolvement), RBI data showed. Through this auction, the government was set to borrow Rs 32,000 crore in total, spread over bonds of four different tenures. However, the lower borrowing because of the unsold bonds of five-year tenure was partially offset through higher borrowings of Rs 5,927 crore through three other bonds.
According to bond market players, the RBI’s commitment in its policy announcement on Wednesday in which it assured to contain any abrupt spike in yield for the longer term paper eased pressure on the medium to long end of the yield curve.
However, the shorter end (tenure of up to seven years) of the curve is expected to go up slowly with the use of longer term variable reverse repo for liquidity absorption, they said.
In its bimonthly policy meet that ended on Wednesday, the RBI had said that liquidity operations will continue to ensure orderly market conditions. As part of the same, the RBI will hold variable rate reverse repos of longer maturities.
Also, to ensure orderly evolution of the yield curve, it was decided to buy G-secs from the secondary market G-sec Acquisition Programme (GSAP). The central bank had said under GSAP, it will buy G-secs worth Rs 1 lakh crore during April-June 2021.

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