The bond markets seeking higher yields gave a rather lukewarm response to the Reserve Bank of India’s recently auctioned three-year bonds worth Rs 3,000 crore, amid tight liquidity in the market.
The sale took place on Thursday as Friday, when sales usually happen, is a public holiday this week.
Less than half of the auction size was actually taken up by investors. While 65 bidders sought to buy the paper maturing in 2021, the RBI accepted just five bids for Rs 1,380 crore with a weighted average yield of 6.72%, the Economic Times reported.
This will result in underwriters of the issue – the primary dealers – having to take the rest of the auction size in their bonks.
Currently, RBI’s policy rate or repo rate is at 6% which is urging investors to seek a substantially higher return spread from RBI’s papers because of the shortage of cash in the markets.
“The devolvement is a reflective of a tight liquidity situation while the bond market too is showing signs of fatigue,” said Sandeep Bagla, associate director at Trust Capital,” Sandeep Bagla, Associate Director at Trust Capital told the paper. “The RBI is clearly not comfortable with it as the proposed dollar swap auction is expected to infuse more rupee liquidity, easing the cash crunch in the market.”
“The banking system has been running short of cash with the deficit hovering in the range of ₹71,000-51,000 crore in April. Election spending is primarily blamed for this,” the paper wrote.
However, the RBI is seeking to rectify the liquidity crunch situation by introduction of a new method called the dollar swap auction which is expected to pump in $10 billion equivalent of rupees into the system by next week. RBI also functions as an investment banker for the Indian government and as part of discharging those functions, it sold five series of sovereign bonds on Friday raising Rs 17,000 crore collectively.