The Reserve Bank of India (RBI) had to partially devolve three out of four bonds offered for sale at a weekly bond auction on Friday. Investors stayed on the sidelines due to lower demand amid uncertainty over the interest rates, rising Omicron cases and the onset of the holiday season.
The central bank devolved Rs 7,267.683 crore or over 30% of the total amount on primary dealers at the auction. The devolvement of Rs 1,697.915 crore was seen on 4.56%-2023, Rs 4,702.684 crore on 5.74%-2026, and Rs 867.084 crore on 6.67%-2035 bonds. The total amount the RBI planned to raise through four bonds was Rs 24,000 crore.
In the underwriting auctions, the RBI decided to pay a PD fee of 0.62 paise on 4.56%-2023, 1.43 paise on 5.74%-2026, and 1.87 paise on 6.67%-2035%, on per Rs 100, according to the central bank’s release.
“Amidst the interest rate uncertainty, the calendar year holidays kept traders away from the desk, which has impacted the demand. People wish to stay light and take a call in a clear directional market. This devolvement has in one sense also given a clue to the market where ideally market yields are expected to be,” said Ajay Manglunia, MD and head institutional fixed income at JM Financial.
Devolvement has impacted yields on government securities as it ended higher compared to the previous close. The benchmark 6.10%-2031 bond yield ended up at 6.4617%, after rising to 6.4776% in the afternoon trade.
Market participants expect a lower volume of trade next week as most players are expected to remain on the sidelines as it is last week of the year and because of holidays. Dealers with state-owned banks expect 6.10%-2031 bond yield to remain in the range of 6.45-48% next week.
Yields on benchmark securities remained volatile this week after the RBI announced unexpected 3-day variable rate reverse repo operations. Market players took it as the central bank is keen on tightening liquidity at a faster pace and manage to keep the short-term rate near the repo rate.