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  1. SDLs worth Rs 14,400 cr set to hit market next week

SDLs worth Rs 14,400 cr set to hit market next week

The Reserve Bank of India (RBI) on Thursday announced the auction of 13 state government securities worth Rs 14,400 crore.

By: | New Delhi | Published: March 4, 2016 12:28 AM

The Reserve Bank of India (RBI) on Thursday announced the auction of 13 state government securities worth Rs 14,400 crore.

The auction will be held on March 8 according to the central bank which also added that the interest will be paid half yearly on September 9 and March 9 of each year till maturity for all states. All the securities have a tenure of 10 years.

Bihar is offering bonds worth `3,000 crore, while Maharashtra is offering `2,000 crore of state government securities. A few weeks back states had issued bonds over `21,000 crore with the minimum cut-off yield on a 10-year paper touching 8.63% levels. The highest cut-off yield had touched 8.88% levels. Market participants believe yields this time are unlikely to hit levels seen in previous auctions considering that the supply is lesser and G-sec yields are at lower levels.

“The SDLs are currently trading close to 8.45% levels. So, I believe the cut-off should come at levels close to 8.50%. Anyway, it should not go to levels seen during previous auction as the benchmark yield has also down post the budget,” a market expert said.

The ten-year benchmark yield fell 16 basis points in a single day after government decided to stick to the projected fiscal deficit target of 3.5% for FY17. Since then, the yields have remained at lower levels. The benchmark yield stood at 7.66% on Thursday.

Many market participants are now expecting open market operations (OMO) purchases from the central bank even as liquidity tightens in March. It is noteworthy that the month of March sees reasonable tightness in liquidity given advance tax outflows and fiscal year-end requirements.

“We can expect further OMO purchases from the RBI as the liquidity conditions would be tight considering the advance tax outflows,” the market expert said.

OMOs are done by the RBI to keep the liquidity position in the market at comfortable levels as well as to keep the short-term rates close to the policy rates.

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