The first central government securities auction after the announcement of the additional borrowing by the government saw decent response from the bond market on Friday with the government managing to borrow Rs 4,000 crore more than the notified amount of Rs 30,000 crore.
Market participants say that anticipation of announcements from the Reserve Bank of India (RBI) in regard to the absorption of additional government borrowing is keeping the bond market optimistic.
On Friday, the government auctioned three securities — bonds maturing in 2024, 2033 and 2050 — intending to raise a total of Rs 30,000 crore. Of these, the papers maturing in 2033 and 2050 saw bids more than three times the notified amounts of Rs 11,000 crore and Rs 7,000 crore respectively. Bond dealers say that the cut-off yields were also in line with market expectations. Meanwhile, the yield on the new benchmark bonds closed flat at 5.78% on Friday.
Siddharth Shah, head of treasury at STCI Primary Dealer, told FE the market has been expecting that the RBI will announce measures regarding the absorption of the additional borrowing and that is keeping the hopes high. “The optimism is reflecting in the yields as well as in the G-sec auction where the government managed to borrow more than the notified amount. The cut-off yields have also not gone too high. The bond market expects the central bank should introduce measures to absorb the whole of the additional borrowing announced by the government,” Shah said.
Market participants believe that despite the huge fiscal package worth Rs 20 lakh crore being announced, the actual cash outgo may be within the boundaries of the additional borrowing announced by the government. Last week, the government announced the revised gross borrowing target for FY21 at Rs 12 lakh crore which means an additional Rs 4.2 lakh crore would be borrowed this year. Experts are of the opinion that the central bank should be announcing measures that would result in the absorption of a good chunk of this additional borrowing.
Vijay Sharma, senior executive vice-president at PNB Gilts, said the actual cash outgo pertaining to the fiscal package should be well within the additional borrowing announced by the government. “We expect the RBI to conduct OMO purchases to the tune of Rs 3 lakh crore and this is a conservative estimate. Right now it is this hope that is keeping the bond market positive. Any delay in the near term by the central bank in announcing these measures will be taken negatively by the markets,” Sharma said.
Friday’s RBI data shows that the central bank has bought government securities, a good chunk of which is expected to be treasury bills, via open market operations (OMOs) outright purchases worth Rs 1.2 lakh crore since the beginning of April this fiscal year.