Yield of the newly issued 10-year Government Security (G-Sec) shot up to close about 7 basis points higher vis-a-vis previous close as the Reserve Bank of India (RBI) devolved this paper on primary dealers (PDs) at the Friday weekly auction.
RBI devolved the aforementioned paper to the tune of 69 per cent of the notified amount of ₹12,000 crore on PDs. Market players termed the devolvement as intriguing.
The yield of the 10-year paper (7.26 per cent 2033 G-Sec) closed at 7.3889 per cent against previous close of 7.3199 per cent. Price of this paper declined about 45 paise to close at ₹99.13 (₹99.5775).
Bond yields and prices are inversely co-related and move in opposite directions.
Competitive bids
RBI received 165 bids aggregating ₹20426.383 crore against the notified amount of ₹12,000 crore at the auction of the 10-year paper.
The central bank accepted 28 competitive bids aggregating ₹3740.383 Crore and 5 non-competitive binds aggregating ₹5.24 Crore at a weighted average yield (WAY) and weighted average price (WAP) of 7.3424 per cent and ₹99.42, respectively.
RK Gurumurthy, Head-Treasury, Dhanlaxmi Bank, said; ‘(The WAY) Being close or even below market levels and coming as it did towards the end of the Financial Year, this devolvement is a bit surprising. Maybe a long tail among bids…
“Also, in the past RBI has allotted long tails… So, today’s devolvement is all the more intriguing.”
Next week’s LTRO redemptions in a tight money market conditions could be playing on their mind, he added.
Marzban Irani, CIO-Fixed Income, LIC Mutual Funds, opined that RBI devolved the auction of the 10-year paper on PDs as bidders may have resorted to tail bidding (quoting much higher than the prevailing secondary market yield) in view of the likelihood of higher US Treasury yields having a knock-on effect on Indian bond yields.
