Different securities used, but govt bond buyback operations still struggle
Reserve Bank of India providing a new selection of securities for government bond buybacks, such operations continued to face hurdles for the third straight time as the central bank rejected most bids.
The RBI likely did so due to high prices, or low yields sought by banks for selling bonds back to the government, debt market executives said. The RBI is the manager of the government’s debt.
Buying back bonds on behalf of the government at very high price levels would bring down short-term yields sharply, which the RBI may not be comfortable with when it is battling inflation. Bond prices and yields move inversely.
At the buyback auction on Tuesday, the RBI accepted bids worth Rs 5,266.04 crore as against the aggregate notified amount of Rs 60,000 crore worth of bonds that the government had offered to repurchase. The RBI had last week listed out a different set of securities for buybacks than the ones used in the previous two auctions on May 9 and May 16, likely in the hope of eliciting a better response from the market.
While the latest auction saw more bids being accepted than the one held on May 16, the gap between the amount of bonds that the government has been offering to repurchase and the quantum that it has successfully bought back remains large.
On May 16, the RBI had accepted bids worth only Rs 2,069.99 crore out of a notified amount of Rs 60,000 crore. Since May 9 – which was when the RBI announced the first government bond buyback auction after six years – the Centre has managed to repurchase
