G-Sec yields of fiscal’s first auction higher than expected

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Mumbai, April 5: In the first auction of the fiscal 2005-06, the Reserve Bank of India (RBI) set the cut-off price of 6.85% 2012 stock at Rs 101.75 at a yield of 6.80%, higher than the market’s expectation of 6.75%. On Monday, the yield of the 7-year stock was 6.83%.

The cut-off price of the 7.95% 2032 stock was set at Rs 100.25 at a yield of 7.79%, which fell in line with the market’s expectations, said dealers.

The central bank issued the bonds for a total of Rs 8,000 crore under the government’s market borrowing programme. Even as the 7-year stock witnessed good demand across the board, the 27-year stock was sought by insurance players due to its long tenor, said dealers.

“Typically banks have different buckets for asset liability management (ALM) purposes, in which banks have to maintain some securities in each of them. So the 7-year stock witnessed good demand from banks.”

Although there was some negative bidding by banks and primary dealers (PDs) for the 7.95% 2032 stock, the 27-year paper was well bid by insurance companies and mutual funds, said dealers. Dealers expect these stocks to trade actively from Wednesday. “These stocks are highly illiquid in nature,” said a dealer.

The RBI received 9 non-competitive bids accruing to Rs 19.68 crore for the 7.95% 2012 stock and received 6 non-competitive bids accruing to Rs 14 crore for the 7.95% 2032 stock. It received 316 competitive bids aggregating to Rs 10755.50 crore for the 7-year stock and recieved 135 bids totalling Rs 5983.5 crore for the 17-year stock.

The government will be borrowing Rs 24,000 crore more in the first half of fiscal 2005-06 at Rs 83,000 crore as against Rs 59,000 crore in the first half of the corresponding period of the last year.