The government bond market will see bond supply coming down by R15,000 crore for 2013-14, as the RBI has cancelled a bond auction scheduled under the borrowing programme.
“On review of the government of India (GoI)’s cash position and funding requirement, it has been decided to cancel the deferred auction scheduled on January 17, 2014 amounting to R15,000 crore,” the RBI said in a release on Wednesday.
This cancellation brings down the government’s market borrowing to R5.64 lakh crore for the current year from the budgeted R5.79 lakh crore.
With the auction cancelled, the R10,000 crore worth of bond auction on February 7 will be the last under the borrowing plan for 2013-14.
Bond yields are likely to fall Thursday on the announcement. Yields have already eased 10 basis points in the last one week as the borrowing plan draws to a close. The 10-year benchmark 8.83%, 2023 bond yield ended at 8.71% on Wednesday and could fall to 8.65% on Thursday.
Further, the RBI said that it has conducted a switch transaction worth R27,000 crore with an institutional investor, wherein the central bank bought back government bonds maturing in 2014, 2015 and 2016 and issued longer tenure securities to the investor.
In the Union Budget, finance minister P Chidambaram had said that the government would conduct bond switches for R50,000 crore to tide over large redemptions. In such a switch, the government would buyback bonds maturing in 2014-16 and issue longer term securities to the investors.
However, RBI Deputy governor HR Khan had earlier indicated that the switch may not happen in 2013-14.