Govt paper gets good response

MUMBAI, July 28: The Reserve Bank of India pegged the coupon rate of four-year government bonds at 10.85 per cent - in line with market exp...

MUMBAI, July 28: The Reserve Bank of India pegged the coupon rate of four-year government bonds at 10.85 per cent – in line with market expectations – as the Rs 5,000 crore auction on Monday drew more than double the notified amount with the apex bank receiving 534 bids for Rs 11,307.82 crore.

The RBI accepeted 247 bids for Rs 5,000 crore. With this the government has completed more than 80 per cent of its budgeted net borrowing of Rs 33,820 crore in the current fiscal.

As the coupon rate was fixed at 10.85 per cent for a four-year paper, the yield curve on Government of India securities in the primary market turned totally skewed. The five-year paper was auctioned at 12.69 per cent and three-year paper at 12.14 per cent in the primary market during the current financial year.

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"The liquidity overhang in the banking system has led to the lowering of interest rates on government securities," a treasury chief said. A banker pointed out that if this trend continues, the government is likely to come out with another auction or "on tap" of gilts. The price of the security jumped by 80 paise in the secondary market with a deal being concluded at Rs 100.80 giving a yield of 10.60 per cent. "A bank which has received good allotment sold the stock to create a benchmark, but the price is high.

Tomorrow a price correction is likely to take place and the security is likely to be traded at Rs 100.50. The price correction will take place as the price is overheated," a dealer in a brokerage said.

The apex bank alloted 40 bidders partial allotment while the weighted average yield of the security was 10.79 per cent. There was no devolvement on the RBI or any of the six primary dealers.

"The cut-off has been very much in line with the market expectations," a dealer with a primary dealer said.