Reserve Bank of India leaves 10-year bond unsold in auction, rejects bid

The Reserve Bank of India (RBI) decided not to sell 10-year bonds on Friday’s auction, possibly because it was not happy with the bid.

The rejection of the bids brought down yields by 2 basis points and the 10-year bond closed at below 6 per cent again, at 5.99 per cent.

The RBI had scheduled to auction Rs 14,000 crore of bonds on Friday’s auction. The underwriters were paid for the auction, but the RBI decided not to sell to them either.

The auction was part of a Rs 26,000 crore primary auction. On Friday’s auction, the central bank also introduced a new 3-year bond at 4.26 per cent.

The RBI routinely cancels the 10-year auction, or curtails it as it targets the 10-year segment as the rate signal. Therefore, whenever the 10-year rates inch up, in this case above 6 per cent, the RBI refuses to sell it.

On May 20, the RBI will be buying Rs 35,000 crore of bonds from the market as part of its government securities acquisition programme (G-SAP) where it will also buy the 10-year bonds. The cancelling of auctions, along with secondary market purchase of the 10-year bonds, keep the yields soft, which the RBI hopes work as a signal for the market as well as banks.

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