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RBI purchases Rs 10,000-crore G-Secs, sells Rs 6,825 cr securities via OMOs

In the OMO purchase of 6.45 per cent GS 2029, which is a benchmark security, the RBI received Rs 20,826 crore worth of bids from the participants but accepted Rs 10,000 crore of bids.

By: ENS Economic Bureau | Mumbai |
Updated: December 24, 2019 5:00:17 am
The central bank received 161 bids to purchase 6.45 per cent-2029 bonds whereas it accepted 145 bids. The cut-off yield to accept the bid was 6.546 per cent.

The Reserve Bank on Monday purchased Rs 10,000 crore worth of long-term government securities and sold Rs 6,825 crore of four short-term securities through the special open market operations (OMOs). Last week, the RBI had announced simultaneous purchase and sale of government securities under OMOs for Rs 10,000 crore each.

In the OMO purchase of 6.45 per cent GS 2029, which is a benchmark security, the RBI received Rs 20,826 crore worth of bids from the participants but accepted Rs 10,000 crore of bids.

The central bank received 161 bids to purchase 6.45 per cent-2029 bonds whereas it accepted 145 bids. The cut-off yield to accept the bid was 6.546 per cent. The RBI offered to sell four government securities — 6.65 per cent GS 2020; 7.80 per cent GS 2020; 8.27 per cent GS 2020 and 8.12 per cent GS 2020 through OMO sale.

It accepted only Rs 6,825 crore worth of bids for the four securities as against Rs 20,330 crore bids it received in the OMO sale auction. In terms of number of bids, the central bank received 30 bids for 6.65 per cent GS 2020; 26 for 7.80 per cent GS 2020, 13 for 8.27 per cent GS 2020 and 47 for 8.12 per cent GS 2020 but accepted 6, 13, 3 and 13 bids, respectively.

The completion of the purchase of the benchmark bonds worth at better than market rates implies its strong intent of bringing down the term premia, experts said.

Ananth Narayan, professor-finance at SPJIMR said the “operation twist” OMO cut-off announced by the RBI was positive for government bonds on multiple counts. “For one, the RBI purchased Rs 10,000 crore of the 10-year bonds at a cut-off of 6.546 per cent, a lower yield than seen in the secondary market during the day. Second, it sold only Rs 6,825 crore of 1-year bonds, indicating that it did not want short-term bond yields to go up significantly. In effect, it ended up net buying Rs 3,125 crore of bonds. All this will signal its strong intent to bring down term premium in government bonds, while at the same time ensuring that short-end bond yields do not move up,” he said.

A dealer also pointed out to the fact that the central bank’s intention to buy the long-tenor bonds was successfully executed and that too at better than market levels. “From that perspective, it is a very good cut-off that has come. The sale of short-dated securities did not happen fully but I believe that the market may not be perturbed by this. The RBI may not want the short-tend yields to shoot up beyond a certain level,” the dealer said. —FE & PTI

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