MUMBAI: Compounding the woes in the bond market, government securities (G-Secs) worth about Rs 25,000 crore, out of the Rs 31,000 crore put on auction this week, remained unsold. RBI data also showed that the entire auction amount for the benchmark 10-year bonds, worth Rs 11,000 crore and G-Secs of four-year tenure worth Rs 10,700 crore, were nearly devolved in Thursday’s auction. In addition, G-Secs worth Rs 3,500 crore of 40-year tenure also remained unsold.
As a result of the devolvement, the 10-year G-Sec yield shot up by nearly 10 basis points in the secondary bond market to close at 6.13%.
The rising US yields and price of crude oil is weighing on market sentiment, bond dealers said. With the government’s huge borrowing programme scheduled at least till the end of FY22 and some expected rise in combined market borrowing by states, bond dealers feel yields are expected to remain elevated for at least a few more months.
Since the benchmark yield is one of the determinants of the rate of interest in the economy, rising yields could lead to higher lending rates.
In what bond dealers said was the first such instance in the gilt market , the RBI didn’t accept any underwriting offer for the longest dated bonds of 40-year tenure in Thursday’s auction. Underwriting is a type of insurance under which the RBI pays some fee to approved bond houses (primary dealers) to buy the unsold bonds in G-Sec auctions.