The Reserve Bank of India (RBI) on Friday clarified that UDAY bonds, if and when issued as non-SLR state development bonds, will not hit the market but will be done through the private placement route.
The central bank also said it would consider regulatory relaxations, including classification of these bonds as held to maturity (HTM).
This has come in as a relief to the debt market on Friday as bonds being classified in the HTM category need not be marked-to-market.
Earlier, the bond market was reeling under concerns of the additional supply of UDAY bonds to the system which was already seeing a considerable supply-demand mismatch.
Over Rs21,000 crore of state development loans (SDLs) being auctioned earlier this week and yields offered by some of the states had touched as high as 8.88%.
With the clarification, the bond markets saw some relief on Friday even as the ten-year benchmark yield fell to 7.78%. Additional relief came in the form of the central bank announcing an open market operation (OMO) purchase worth Rs 12,000 crore.
The RBI said it would purchase G-secs worth Rs12,000 crore on March 3 through a multi-security auction.