RBI playing role of a stabiliser with government bond sales

MUMBAI: Bond prices may be falling due to a global rout in bond markets, but the Reserve Bank of India is not impressed with the market behaviour, as reflected by the central bank’s government bond sales this week. Sovereign stocks remained partly unsold on Friday, while the auctioning agency on Wednesday rejected bids as high as 8.20% for around Rs 8,000 crore Treasury bill sales, or shortterm sovereign debt securities.

This indicates the RBI could play the role of a stabiliser, dealers said. “A rise in the shorter end of the curve doesn’t auger well in an easing cycle; thus cancellation of auction was also possibly an attempt to restore stability in the market,” said Soumyajit Niyogi, an analyst at SBI DFHI Primary Dealership.

“Today’s (Friday’s) devolvement of longer-duration papers shows less appetite by investors at the prevailing price level.”



Of the scheduled bond sales worth Rs 16,000 crore, Rs 2,709 crore of stocks with 17- to 29-year maturities were not sold, and primary dealers took them on their books. Investors were looking at 8.07% for two series of bonds. Similarly, the RBI sold only Rs 6,100 crore, about 44%, of the full weekly T-bill sales kitty at just 7.97%, 47 basis points higher than the benchmark overnight rate.

“Rejection of T-bill bids along with Friday’s devolvement suggests the RBI may not be comfortable issuing government securities at higher yields,” said Ajay Manglunia, senior vice-president at Edelweiss Securities. “The benchmark yield is unlikely to rise above 8% in the short term now.”

The RBI signal to keep yields under check came at a time when markets are looking slightly confused as to whether interest rate will further be reduced.

The benchmark bond yield has risen 17 basis points, or around 2%, in the past month as prices dropped. The yield closed at 7.95% on Friday. Globally, yield curves have steepened, driven by improvement in growth condition and inflationary expectations.

The US 10-year Treasury bond yields are now 2.13% versus 1.86% about a month ago. State government bonds were sold above 8.25% last Tuesday, higher than market expectations.