RBI auctions Rs 20,000 cr gilt

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The Reserve Bank of India (RBI) raised a record Rs 20,000 crore at the regular weekly auction of government securities on Thursday, as a steady currency and expectations of a stable government made sovereign debt attractive for both foreign and domestic investors.

It proved to be the biggest-ever auction for the central bank, which manages the government debt programme by auctioning bonds to financial institutions. Until Thursday, the maximum am­ount mopped up in these auctions was Rs 16,000 crore.

The auction was for Rs 20,000 crore on Thursday against the usual limit of Rs 16,000 crore, but it got oversubscribed more than two times.

Bonds in certain buckets were subscribed up to three times.

The cutoff yields — the threshold below which one cannot bid — were lower than market expectations, which indicated strong demand. Foreign institutional investors, who have been barred from short-term government debt by the central bank, were seen to be realigning their portfolios by shifting to longer-duration bonds.

The record auction showed investors’ renewed confidence in the domestic economy. Rating agency Standard and Poor’s on Thursday said it could upgrade India’s outlook if the new government addresses some of the country’s fiscal and economic challenges through steps such as implementation of the goods and services tax.

Mohan Shenoy, head of treasury at Kotak Mahindra Bank, said, “Institutions that bid at lower levels managed to get allotments because of lower cutoffs, which led to the rally in the market.”

Both domestic institutions and foreign investors rushed to invest in longer-term government bonds at attractive yields. The most-traded 13-year government bond with a coupon rate of 8.24 per cent maturing in 2027 got oversubscribed three times with bids worth Rs 27,936 crore.

The government is planning to borrow Rs 6.29 lakh crore in this financial year, which is higher than the Rs 5.58 lakh crore it borrowed in the last financial year. After Thursday’s auction, about Rs 3.16 lakh crore worth of government borrowing remains for the April-September period.

Agam Gupta, head of fixed income trading at Standard Chartered Bank, said, “There is a lot of real money coming into the bond market. The attractive yield of over 9 per cent and a stable view on the currency are major attractions for foreign investors. Foreign institutional investors, sovereign wealth funds, insurance companies, mutual funds and public sector banks are all flocking to the market. FIIs are getting out of short-term securities and parking themselves in longer-duration bonds.”

Four securities were up for grabs – bonds worth Rs 5,000 crore maturing in 2022, Rs 9,000 crore maturing in 2027, Rs 3,000 crore maturing in 2030 and another Rs 3,000 crore maturing in 2043.

Government securities opened weaker in the opening trade amid apprehensions over the auction. But the market recovered tracking aggressive cut-offs, especially those for the longer-tenure securities. The benchmark 10-year security with 8.83 per cent coupon rate closed at Rs 99.86, implying a yield of 8.85 per cent, about 11 basis points lower than that of previous day.

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