After the part devolvement of three auctions in a span of six weeks, the Reserve Bank of India (RBI) rejected bids for three out of four bonds offered for sale at the weekly auction on Friday. The central bank did not detail the reason for the rejections.
This is the fourth auction that has seen weak demand and bids at high yield levels from the market. According to bond traders, the RBI may not have been comfortable giving a cutoff that does not reflect its accommodative monetary stance. The government was slated to raise R15,000 crore by issuing four bonds at the weekly auction on Friday.
However, the RBI accepted bids for only the 7.88%, 2030 bond totaling R60,000 crore. The cutoff for this bond was at 8.13%, higher than the secondary market level of about 8.08%. Bids for the other three bonds were rejected completely. After the rejection at Friday’s auction, the government has been able to borrow R9,000 crore less than the scheduled R1.74 lakh crore. A total of R4,863 crore has been devolved in four auctions since April.
“The appetite for bonds is very low in the market right now. Many investors made losses after yields went up sharply after the policy statement and are being cautious now,” said B Prasanna, managing director of ICICI Securities Primary Dealership.
Government bond yields have climbed at least 10 basis points over the last one week as a hawkish policy statement from the RBI, effects of a global bond selloff earlier this month and concerns over domestic inflation kept most buyers at bay.
The benchmark 10-year 7.72%, 2025 bond yield closed at 7.82% on Friday, up 10 bps from a week ago. The bond has incurred losses for all investors who bought it at the maiden auction in May.
In the June policy, the RBI slashed its repo rate by 25 bps, but raised its inflation forecast for January 2016 to 6% and said it has frontloaded its rate cuts.
This brought expectations of future rate cuts sharply down in the bond market. Further, bond yields from US to Europe have risen to multi-month highs as investors dumped fixed income amid rising oil prices and the imminent rate hike by the US Federal Reserve.