Indeed, the government has been raising higher than the notified borrowing amount of Rs 30,000 crore every week via auction of central government securities by exercising the greenshoe option over last few weeks.
The benchmark yield on Tuesday closed at over one-month high levels of 5.90% as consistent supply of central government securities and the absence of the much anticipated measures from the RBI to absorb the excess supply of bonds is taking a toll on the yields, according to experts.
Siddharth Shah, head of treasury at STCI Primary Dealer, said for the past one month, the market has been absorbing the G-sec supply expecting that there will be some measures announced by the RBI to absorb the excess supply. “However, the incremental appetite seems to be waning as the supply of G-secs remains relentless leading to the market’s inability to make an upmove. Market participants seem to be losing patience and the benchmark yield may soon move towards 6% unless the central bank steps in with some OMO purchases,” Shah said.
Indeed, the government has been raising higher than the notified borrowing amount of Rs 30,000 crore every week via auction of central government securities by exercising the greenshoe option over last few weeks. For instance, in the latest auction conducted last week, the government borrowed Rs 32,000 crore against the notified amount of Rs 30,000 crore.
Furthermore, foreign portfolio investors (FPIs) have also not resumed any significant buying of Indian bonds ever since the Covid-19 crisis led to sharp outflows beginning March. So far in June, FPIs have been net sellers of Indian debt at over $460 million.
Ananth Narayan, professor-finance at SPJIMR, said if it had not been for the confidence that the RBI stands ready to control yields, given the sheer supply of government paper, yields would have been much higher. “The market is confident that the RBI will step in with OMO purchases and other conventional and unconventional steps to control yields when needed,” Narayan said.