RBI also notified the third tranche of its three-year TLTROs worth Rs 25,000 crore that will be conducted on April 9.
Bonds sold-off on Friday with the benchmark yield closing 17 basis points higher at 6.305% as concerns of over-supply of bonds in the market and a lack of indication of how the central bank intends to absorb any potential additional borrowing by the government in the wake of the Covid-19 crisis led to disappointment among market participants.
Siddharth Shah, head of treasury at STCI Primary Dealer, told FE that prior to the announcement of the borrowing calendar for H1FY21, expectations had built up among market participants that the potential additional borrowings by the government in FY21 would be directly absorbed by the Reserve Bank of India (RBI).
The market had also anticipated the government borrowing to remain light in April. However, none of this materialised in the indicative borrowing calendar that has led to some disappointment. So far, the RBI has also not announced the trajectory of OMO purchases that could absorb the potential additional borrowing by the government. Moreover, the supply of SDLs is also huge this time and the market is really worried about the total over-supply in the market. All this has taken a toll on the yields,” Shah said.
Earlier, some reports had indicated that the government borrowing may remain light in April which had led to some amount of optimism among market participants on Tuesday. Dealers later said the optimism was dashed post the release of the H1 borrowing calendar according to which, the government is set to borrow Rs 79,000 crore in April till May 1.
It is also noteworthy that state governments are likely to borrow Rs 1.27 lakh crore from the markets in Q1FY21 as per the indicative calendar. Dealers pointed out that although the expected quantum of borrowings by state governments was notified at Rs 26,100 crore during the April 7 auction, as per the indicative borrowing calendar, the actual auction amount in the latest notification stands at Rs 37,500 crore. A single SDL auction of such a large quantum is not something that we usually encounter, a dealer said.
RBI on Friday also announced the result of the second tranche of its three-year targeted long-term repo operation (TLTRO) where it received bids worth Rs 99,760 crore against a notified amount of Rs 25,000 crore, implying a strong demand for the funds provided by the central bank.
At the same time, the RBI also notified the third tranche of its three-year TLTROs worth Rs 25,000 crore that will be conducted on April 9. The funds availed under this tranche of TLTRO would have to be deployed within 30 working days from the date of the operation. So, far the central bank has conducted TLTROs worth Rs 50,000 crore.