RBI's Rs 40,000 Crore Bond Buyback Gets Tepid Response Yet Again
Participants placed bids worth Rs 10,989 crore, of which the RBI accepted offers of Rs 5,111.29 crore.
The latest government bond buyback of Rs 40,000 crore, offered by the Reserve Bank of India, received a tepid response from bidders on Thursday for the third time this month—in line with market expectations of muted demand in the repurchase operation.
The four long-tenor papers on offer were due to mature this year—one maturing next month, one in July, and two in November. The securities include one 10-year, 15-year and 13-year note each and one floating-rate bond. The auction for the securities was conducted using the multiple price method on the RBI Core Banking Solution (E-Kuber) system.
Participants placed bids worth Rs 10,989 crore, of which the central bank accepted offers of Rs 5,111.29 crore. The floating-rate bond received the highest bid of Rs 5,860.8 crore, followed by the 15-year paper for Rs 2,349.1 crore.
Low Demand For G-Sec Repurchases
Earlier this month, the RBI conducted auctions to buy government bonds worth Rs 1.6 lakh crore. However, it only garnered offers worth Rs 1.1 lakh crore. Out of this, the RBI accepted offers amounting to Rs 17,849 crore, which is 11% of the total bonds offered for repurchase.
In the first two buybacks, the bond mix included those that were due for maturity in November and January. The central bank then changed the mix of securities, seemingly in the hope of better pricing offers, according to Abhishek Upadhyay, senior economist at ICICI Securities Primary dealership.
Banks may have bought the securities offered at the auction earlier at higher prices, and they might not want to sell them at a loss, bond market traders said.
In a buyback, the government uses its cash reserves to repay a portion of its outstanding borrowings through bonds before maturity. Since banks hold large amounts of government bonds, buyback operations inject liquidity into the banking system.
This is being done since government spending is restrained during the ongoing Lok Sabha elections, owing to poll norms. The spending is expected to pick up after a new government takes office following the election results.
