RBI G-Sec auction falters fourth time

MUMBAI: India’s bond buyers – and the country’s only seller of sovereign debt – don’t seem to be yielding on yields just yet. That’s causing bids to be only partially successful, with Friday’s auction marking the fourth such consecutive failure that might prompt Mint Road to further tweak its sales pitch.

“Rising global yields, coupled with inflation concerns, are weighing on the local debt market outlook,” said Dhawal Dalal, CIO – fixed income at Edelweiss Mutual Fund. “The anticipation of devolvement is denting the market sentiment even before the bidding in auctions.”

For the first time in about seven years, the central bank allocated bonds under the uniform price auction in what was seen as a move to pacify investors that lost money in previous auctions, when thousands of crores of bonds devolved.

But even this did not yield the desired results, with the same maturity paper devolving partly on bond houses. The set of bonds sold in uniform price auctions carries a coupon of 6.22%, and are due to mature in 2035.

Out of Rs 11,000 crore, about Rs 2,132 crore of bonds remained unsold. The same series of papers devolved earlier this month, prompting the authorities to change the auction model.

Similarly, about half the quantum of shorter duration paper (2023) remained unsold.
“A large size of OMO purchases instead of Operation Twists could help calm the markets, especially when record high issuances are expected next fiscal,” said Kumaresh Ramakrishnan, CIO – fixed income at PGIM MF. “The local market is showing a bit of discomfort amid the fast rising global yields and an accelerating local economy.”

US Treasury benchmark papers yielded more than 1.6 percent, the gauge trebling since August last year. American sovereign papers are billed as the safest asset class in the world.

Back home, the benchmark bond yield rose another five basis points to close at 6.23% Friday.
The central bank did not sell about half of the planned size for bonds maturing in 2050.

A floating rate paper, however, found flavour among bidders with the RBI allotting an additional Rs 1,450 crore.

“The yield expectation has to be rationalised if you believe in a market determined mechanism. You cannot remain immune when global yields are leapfrogging,” said a senior bond dealer participating in the auction.