RBI fixes cut-off yield at 8.11% in Rs 1,050-cr auction

MUMBAI: Positive sentiments in the government bond market and a smaller-sized issue forced yields on these bonds down by almost 50 bps since the previous issuance. The state governments, which normally pay half a percentage more than the Centre for their borrowings, have managed to raise funds at 8.11% -- a mere 13 bps below the yield on the central government bonds.

RBI on Friday conducted the auction of state government securities for four states -- Assam, Rajasthan, Kerala and Tripura for a total size of Rs 1,050 crore. The cut-off yields fixed by the central bank stood at 8.11%, as compared to a cut-off yield hovering between 8.61% and 8.65% in the previous state government auction held in July.

SR Kamath, GM, Securities Trading Corporation of India said, “the auction has come at a time when the market is in a bullish mood. Market participants expected the yield on the 10-year benchmark paper to fall to 7.85% levels at the time of bidding.

Unfortunately, the yields on Friday came off their one-week lows of 7.91% to end the day at 78.98%. “ Typically, it has been observed in the case of state government auctions that regional banks tend to pick up large positions in the auctioned securities.

Sanjeet Singh, VP, ICICI Securities explained, “over the past one month, bond yields have fallen by almost 30 bps. The size of the issuance too was very limited and hence, market participants wanting to pick large positions went in for an aggressive bidding, pushing down yields further.”