Weekly bonds auction sees tepid demand, PDs come to the rescue

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Bonds worth Rs 4,387.674 crore priced at a coupon of 5.74% devolved on primary dealers (PDs) on Friday due to weak demand from investors. However, the Reserve Bank of India (RBI) accepted a greenshoe amount of Rs 500 crore of bonds carrying a coupon of 4.56% and maturing in 2023.

According to a press release, Rs 6,000 crore worth of gilts with a coupon of 5.74% and maturing in 2026 were offered at the weekly auction. Of that, only Rs 1,612.326 crore worth of bonds was accepted. The rest devolved on primary dealers. The central bank set a cut-off price of Rs 99.10 or a cut-off yield 5.9543% on the five-year gilts.

“Volumes are lacklustre and demand was weak and some devolvement was expected,” Ajay Manglunia, MD and head – institutional fixed income at JM Financial, said.

Primary dealers demanded a higher commission cut-off rate. The RBI set a commission of 11 paise per Rs 100 on the 5.74%-2026 bonds.

The partial devolvement of 2026 gilts on PDs led to a sell-off in the market, which pushed up the yields on bonds. The benchmark bond yield rose two basis points and ended at 6.5423%. The late announcement of the weekly bond auction results led to the extension of market hours twice by 30 minutes.

Dealers with PDs said investors are quite uncertain due to rising cases of the new variant of coronavirus, Omicron, and higher SDL issuances is expected to weigh on the sentiments further. Traders expect the benchmark yield to trade between 6.50% and 6.58% next week considering the uptick in crude oil prices and other global factors.

“This may continue till month end and then we have the Budget and the RBI credit policy. Ahead of this annual event, people want to stay light,” Manglunia said.