Government bonds fell on Friday after the Reserve Bank of India did not fully sell its allotment of debt at the R14,000-crore auction, with the devolvement to traders including the new 10-year bond introduced last week.
The RBI devolved around one-third of the R9,000 crore in the 2024 bonds that were sold for the first time last week.
Analysts said the devolvement was not a surprise given that the RBI had surprised markets by opting to sell the bond, which is soon to become the country’s benchmark, for a second consecutive week instead of waiting the customary two-three weeks between tranches.
The RBI had also opted for an unpopular method of multiple price auction, which makes investors buy debt at the price at which they bid, even if it’s higher and not the cut-off rate.
Traders also noted sentiment was hit by caution ahead of the RBI’s policy review next week, even as the RBI is expected to keep rates on hold, and ahead of US monthly jobs data later in the day. "The devolvement is not a surprise at all," said Bekxy Kuriakose, head of fixed income trading at Principal PNB Asset Management. “The 10-year paper was overpriced at the auction. It still looks overpriced but the fact remains it is the new benchmark, so I expect it spreads over the old bond to come down to 15-18 bps over time, but it may not happen immediately,” she added.