Dealers see subtle RBI message in bond sale changes

Jan 15 2013, 12:33 IST
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SummaryRBI will hold Friday's 120 billion rupees bond auction via a multiple price method.

* RBI will hold Friday's 120 billion rupees bond auction via a multiple price method, moving away from the uniform price the central bank has used for a while now.

* Under a multiple price auction, investors who bid above the cut-off price will get the allocation at the higher price they've offered, in what is popularly known as "winner's curse".

* Bidders will thus think longer and harder about their bids, dealers say, given under the uniform price method they had received allocations at the cut-off price regardless of which prices they bid.

* By influencing bidders' behaviour, the move could be a subtle signal from the central bank the current rally may be overdone, say dealers, and would also lead to better price discovery.

* RBI has typically shifted to multiple price auctions when bond markets are in bullish phases.

* "The multiple price auction would definitely lead to a better price discovery and would give a better direction of yield curve," says a bond strategist with a primary dealership.

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