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Big appetite for gilts

Mumbai, April 17: The Reserve Bank’s largest weekly bond auction of Rs 20,000 crore sailed through today with three-times subscription, allaying fears that the market may turn its back to such a huge offering given the bleak chances of an interest rate cut.

The good response was facilitated by the maturity of a government paper yesterday that released almost Rs 40,000 crore into the system. Besides, with low demand for credit, banks are parking their money in government debt.

The securities market was nervous ahead of the auction as it would result in the supply of more bonds, leading to a drop in prices and higher yield.

Bond market circles said today’s auction saw good participation from banks and insurance companies, with the RBI receiving bids of more than Rs 61,500 crore.

The apex bank offered to sell Rs 5,000 crore of 8.35 per cent (2022) bond, Rs 9,000 crore of 8.24 per cent (2027) bond and Rs 3,000 crore each of 9.20 per cent (2030) and 9.23 per cent (2043) bonds.

It is learnt that the Life Insurance Corporation bought the majority of the long-term offering today — the 9.20 per cent (2030) and 9.23 per cent (2043) bonds.

“With redemptions of Rs 40,000 crore, it was expected that issues would sell easily. The large-term repo for Rs 60,000 crore and easy liquidity also helped. Moreover, demand from banks and insurance companies and the lower cut-off (rate at which bids are accepted) boosted sentiment,” K Harihar, head of treasury at FirstRand Bank, told The Telegraph.

Bond market sentiments improved vastly after the auction, with yields on 10-year paper falling over 10 basis points to 8-8.5 per cent.

 
 
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