A large part of the benchmark 10-year bond devolved on primary dealers on Friday as the central bank was not comfortable with the higher yield sought by the participants.
The Reserve Bank of India on Friday conducted a Rs 26,000cr government securities bond auction which included the benchmark 5.85 per cent 2030 paper.
Against the notified amount of Rs 14,000 crore, the RBI received bids of almost Rs 39,150 crore. However, it accepted bids of Rs 4,024.23 crore, which led to Rs 9,975.763 crore devolving on the primary dealers. Devolvement happens when underwriters are forced to buy the unsold paper. It came at a cut-off yield of 5.99 per cent.
Besides, the RBI offered for auction a two-year paper — the 4.26 per cent 2023 bond — amounting to Rs 3,000 crore and a 40-year paper — 6.76 per cent 2061 bond — amounting to Rs 9,000 crore.
The central bank accepted bids worth Rs 3,750 crore for the two-year paper as there was a greenshoe option of Rs 750 crore.
At the bond markets, the 10-year old benchmark settled at 6 per cent against the previous close of 6.01 per cent.
After remaining below the 6 per cent mark for nine consecutive sessions in May, the 10 year paper has been trading above the 6 per cent mark since May 28. However, they have moved in a narrow range. A recent Bloomberg report has said that the RBI holding of the 5.85 per cent 2030 bond has risen to 52 per cent of its outstanding through measures such as Operation Twist and the two tranches of government securities acquisition programme.
Last week, after the announcement of the monetary policy, RBI governor Shaktikanta Das had said the central bank is not fixated on maintaining a 6 per cent level for the 10 year paper. “There is nothing like 6 per cent is sacrosanct. We have talked about orderly evolution of the yield curve and focussing on that,’’ he said.
If the results of Friday’s auction are any indication, it is likely to continue keeping them under check.
Sensex peaks
Equity benchmarks darted up to fresh lifetime highs on Friday as IT, pharma and energy counters saw brisk buying in tandem with a bullish trend overseas.
After touching a record intra-day peak of 52641.53, the 30-share BSE Sensex ended 174.29 points or 0.33 per cent up at its new closing high of 52474.76.
Similarly, the broader NSE Nifty advanced 61.60 points or 0.39 per cent to its lifetime peak of 15799.35.
During the week, the Sensex jumped 374.71 points, or 0.71 per cent, while the Nifty advanced 129.10 points or 0.82 per cent.
Taper talk
The US Federal Reserve is likely to announce in August or September a strategy for reducing its massive bond buying programme, but won’t start cutting monthly purchases until early next year, a Reuters poll of economists found.
A significant number of Fed watchers also said the central bank would wait until later in the year before announcing a taper, now the main focus for markets fretting over rising inflation as an end to the pandemic in the US is in sight.
Booming demand with the U.S. economy reopening is expected to continue and push up consumer prices this year, with the June 4-10 Reuters poll of over 100 economists showing an upgrade to both growth and inflation forecasts.