More than half of the size with five-year maturity devolved on bond houses. The central bank cancelled the sale of the rest sum with 10-year maturity, a move aimed at retaining yields in sync with policy benchmarks.
Five-year bonds worth Rs 10,750 crore devolved on primary dealers, which have taken those securities on their books.
“RBI is sending signals to the market that it will not entertain any distortion in yields movement,” said Vijay Sharma, executive vice president at PNB GILT. “Traders were expecting a few basis points higher yields in the auction. Had the central bank accepted the higher yields, it would have again eventually led overall yields higher.”
It sold a paltry stock of the five-year papers worth Rs 221 crore. The cut-off yield was set at 5.31 percent.
The majority of bidders demanded three-four basis points higher for the five-year paper series, leading to devolvement, dealers said.
On the other hand, the government cancelled long term bonds with 10-year maturity. With limited financial wherewithal, primary dealers or bond houses are not in a position to hold large stocks of securities in their books.
“A combination of devolvement and cancellation on the same day is as strong a signal as can be,” said Sharma.
Surprisingly the market reaction was muted. The benchmark bond yielded a tad lower at 5.94 percent Friday.
The RBI would follow up with further measures to keep the yields lower. “Not following through would impact the markets adversely,” said a bond dealer.
