RBI partially devolves 10 year G-sec at weekly auction

When underwriters of bonds, mostly primary dealers, are forced to buy unsold bonds, it is called devolvement. Photo: iStockphoto

2 min read . 12 Jun 2021Gopika GopakumarMumbai: The Reserve Bank of India on Friday rejected bids worth ₹9975 crore of 10-year bonds at the weekly government auction, with an aim to maintain yields at 6%. This is the second instance during the current fiscal year where RBI devolved bids of 5.85% GS 2030 to primary dealers.

RBI sold ₹16,774 crore of bonds, less than the ₹32,000 crore planned. Of these, it sold ₹4,025 crore of 10-year bonds at a cut-off yield of 5.99%, ₹3,750 crore of two-year paper at 4.19% and ₹9,000 crore of 40-year paper at 6.96%. However, the central bank devolved the remaining amount on primary dealers as it refused to pay the higher yield sought by them. When underwriters of bonds, mostly primary dealers, are forced to buy the unsold bonds, it is called devolvement.

The amount raised so far in FY22 stands at ₹2.7 lakh crore, which is 22.6% of the total budgeted borrowing limit of ₹12.05 lakh crore in FY22. The total borrowings by the central government so far are 60% more than the corresponding period last year.

According to Care Ratings, the total amount devolved to the primary dealer is ₹41,020 crore. Out of the total devolvement so far, 52% pertains to the five-year instrument while 42% pertains to the 10-year security.

Last week, RBI had devolved bulk of five-year bonds and over one-fourth of 2050 paper on primary dealers. The central bank had planned to sell ₹11,000 crore of five-year bonds and ₹7000 crore of 2050 bonds. This was part of the ₹32,000 crore of auction of four bonds. The weighted average yields in this auction have declined to 6.07% in this auction compared with 6.18% in last Friday’s auction.

RBI also announced the second phase of the Government Securities Acquisition Program (GSAP) of ₹1.2 trillion in September. “The G-SAP programme of the RBI has been largely successful in keeping the bond yields in check. However, to make the impact more meaningful, RBI may consider shifting the focus on 7-8 year papers while announcing OMO/ G-Sap etc. This will smoothen the curve and also reduce upward pressure on benchmark yield. Additionally, RBI can also come up with a prior calendar of bucket-wise maturity for GSAP-2. Furthermore, more purchases might be done in illiquid securities compared to liquid securities in each bucket. Accordingly, banks will be able to offload their HTM stocks and buy liquid ones," said Soumya Kanti Ghosh, chief economist, State Bank of India