The Government of India had announced the sale (re-issue) of (i) “6.49 percent Government Stock 2015” for a notified amount of Rs.4,000 crore (nominal) (ii) “6.90 percent Government Stock 2019” for a notified amount of Rs.6,000 crore (nominal) and (iii) “7.40 percent Government Stock 2035” for a notified amount of Rs. 2,000 crore (nominal) through price based auctions on August 7, 2009 (Friday). The Government of India in consultation with the Reserve Bank of India have rejected all the bids submitted in the above auctions.The yields moved back to 7.03%.
The last time this happened, (March) yields went from 7% down to 6.6% in the same day.
According to the release calendar, RBI has to sell about 86,000 cr. more this quarter. Yet, it's not been able to buy back much in the OMO repurchase auctions - even yesterday's OMO let RBI buy back only 3,000 cr. out of the 6,000 cr. it wanted to buy.
Interestingly, the mid-year report mentioned that the RBI had already managed to sell bonds worth 201,000 cr. (gross.) of which 34K cr. was redeemed. Now they only wanted to sell 98,000 cr. more in the remaining two months, of which 12,000 cr. was sold on July 31. Total repurchases - for which RBI will pay out money - add up to about 37,000 cr. out of an 80,000 cr. kitty, leaving them with 45,000 cr.
What they wanted to sell after that Jul31 announcement was about 48,000 cr. They have borrowed 12,000 cr. already. They have 45,000 cr. in the OMO repurchase kitty that can be transferred (okay, this needs some parliamentary action, but still). They also have a 28,000 cr. desequestered MSS balance cash-hoard which can be added to make the grade. So they don't have to pay high yields - they could force the issue and wait a while.
Or, it may just be a move to bring yields back temporarily and stave off panic. Must check out news. (Seems there's also something wildly off at the 1 year T-Bill yield and the CBLO arbitrage desks, something to check out)
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>Deepak,
I would tend to sense the beginnings of concern, if not panic. RBI is now focusing on inflation, which it would tend to fight with higher interest rates; the PMO is going to fight it with more government bail-outs, which means more deficits, which means more borrowing.
The deflation/inflation debate in India takes on a different dimension from the global macro debate because our currency is so sensitive to foreign fund flows. If we see a retraction of recent inflows, and rupee depreciation, we could be seeing imported inflation.
08.09.09 at 4:48 AM