Govt bond buybacks continue to elicit weak participation from banks

economictimes.indiatimes.com:

Reserve Bank of India, on behalf of the government, accepted bids that represented only a fraction of the total amount of bonds that the Centre had offered to repurchase at a scheduled auction.

At Thursday’s buyback auction of government bonds, the RBI accepted bids worth Rs 5,111.29 crore versus the notified amount of Rs 40,000 crore worth of securities that the Centre had offered to repurchase, latest central bank data showed. Banks offered bids worth Rs 10,989 crore at the auction. The RBI is the government’s debt manager.

The RBI started conducting such buyback auctions on behalf of the government on May 9, after a gap of six years. In total it has conducted four rounds of such auctions – on May 9, May 16, May 21 and May 30.

Bond market participants said that as was the case in the previous auctions, the RBI and the Centre were likely uncomfortable with high prices – or low yields – that banks had offered to sell securities back to the government.

The cumulative aggregate amount of bonds that the government has offered to repurchase through the four auctions is Rs 2 lakh crore. Of that, the RBI has accepted bids worth a total of Rs 22,960 crore at the four auctions, the data showed.

Bond buyback operations by the government result in an immediate injection of funds – or liquidity – in the banking system as banks are repaid by the Centre before the actual dates of maturity of outstanding bonds.