Budget 2020

RBI bond auction devolves fifth time in a row

MUMBAI: The gulf between the central bank and debt investors on the ideal yield range deepened further Friday, with the weekly bond auction floundering for the fifth consecutive week. Rising costs globally, coupled with local additional borrowing, weighed on buyers that demanded higher rates from North Block’s money manager.

Out of Rs 31,000 crore of planned sale, the central bank could not find takers for Rs 19,428 crore of bonds at reasonable rates. Of the four sets of papers up for the primary sale, the central bank accepted only the floating rate bonds maturing in 2033. The rest have mostly devolved to primary dealers that will have to take those papers on their balance sheets.

“Rising global yields are weighing on local market sentiment,” said Mahendra Jajoo, CIO – Fixed Income, Mirae Asset Investment Managers. “The market will gradually reconcile with the RBI seeking the normalisation of the yield curve in an orderly manner. This is a process of adjustment through which the RBI will likely raise additional money for the government.”

Since February 5, the first weekly auction after Finance Minister Nirmala Sitharaman presented the Budget for the next fiscal year, every bid produced unsold stock of bonds. Either the quantum devolved on bond houses or the RBI cancelled sales.

Since the Budget announcement, the benchmark yield rose 34 basis points to close at 6.25 percent Friday, a level last seen on March 24 last year.

“The RBI is aiming to contain the rise in yields as a larger chunk of papers are devolving on primary dealers,” said Glopal Tripathi, head – treasury at Jana Small Finance Bank. “Any significant disruption in yields could pose a balance sheet threat for all market participants as we are in the crucial fourth quarter.

Devolvement on primary dealers will likely add more pressure to the rising yields unless the central bank buys back the instruments in the secondary market.

According to market sources, the RBI is expected to extend support. Bond houses with limited financial wherewithal cannot hold those unsold stock over a long time on their balance sheets.

The US Treasury benchmark nearly trebled to 1.45 percent since August last year.

The government is borrowing an additional Rs 80,000 crore this financial year that ends on March 31.