Despite the central government borrowing a record amount from the market in the previous fiscal, there was no devolvement on prime dealers for the first time in almost two decades (since 2005-06). Additionally, there was no cancellation of government securities (G-Sec) auctions in 2023-24, according to the Reserve Bank of India (RBI) data.
“The RBI was slightly liberal with its pricing; it was not too conservative on cut-offs,” Vikas Goel, managing director and CEO at PNB Gilts, told FE. “There was strong demand for longer-dated securities, such as 30-, 40-, 50-year papers. The demand mainly came from insurance companies and that demand kept longer yields depressed,” he added.
From the start of the previous fiscal, the market was confident that the RBI would not hike rates further. At the end of the second quarter, news about the inclusion of government securities in global indices came out, which kept the yields under check, Goel said.
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The central government, under its gross market borrowing programme, raised a record Rs 15.4 trillion in the previous fiscal, compared with the total borrowing of Rs 14.21 trillion for 2022-23. Despite this higher borrowing, there was neither any devolvement nor cancellation of the auction of securities in 2023-24. The central bank had devolved eight auctions on primary dealers in FY23, and Rs 52,000 crore was raised from these auctions.
Devolvement is a situation when a security or debt issue does not receive enough subscriptions from investors, leading underwriters, typically primary dealers, to purchase unsold bonds. A devolvement in case of a government securities auction occurs if the cut-off price set by the RBI is beyond the market expectations, or the RBI rejects the bids that are not at par with its prescribed cut-offs.
Devolvement could be partial when the RBI rejects some bids. It is complete when the central bank rejects all the bids. In such cases, PDs as the underwriters of the auction have to absorb the devolved amount.
“Tight liquidity and high demand kept expectations of investors under check. The market was well-behaved and did not ask for too much,” said a senior official of a primary dealer. “The RBI was also flexible and was seen willing to give 3-4 bps to investors.”
High demand for government securities softened the yield in the previous fiscal. The yield on the benchmark 10-year G-sec closed at 7.06% on March 28, from 7.31% on March 31 last year, reflecting a fall of 25 bps.Come from Sports betting site
In September 2023, JP Morgan Chase & Co announced that it would add Indian government bonds to its benchmark Global Bond Index Emerging Markets Index (GBI-EM). Last month, the Bloomberg Index Services said it will also include 34 Indian government bonds eligible for investment via the country’s fully accessible route (FAR) in its Emerging Market Local Currency Index from January 31 next year.
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