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Economy

RBI rejects government bond auction bids

From ET:

The Reserve Bank of India has rejected all the bids received in the auctions held today for the sale of “7.46 per cent Government Stock 2017”, “8.35 per cent Government Stock 2022” and “7.50 per cent Government Stock 2034”.

It plans to announce in due course the revised date of the auction, the details of the securities, the method of auction, the central bank said in a press release. Meanwhile bond yields have fallen dramatically, with the new benchmark quoting at 6.61% after risng above 7% in the course of the day.

“Traders were hoping to sell their bonds to the central bank in OMO and then ask for a higher yield in the auction. RBI has caught them short by rejecting all bids. Naturally yields have collapsed,” said a dealer at ICICI Securities.

Woohoo! What a wild time.

I don’t believe these dealers one little bit. My strong belief is that they decided to hike yields up so they can get bonds cheap – after all, it’s a small market, with a few primary dealers, and FIIs won’t screw around ($200m cap per FII, only so many care). So if they pushed the market down, as has been happening over the last few days, they could easily get the bonds at far lower prices. They even short sold the bonds so they could buy back in the auction. (You can short sell bonds by borrowing them).

And when RBI rejected all bids, the rush to cover the short sales has driven yields up from 7.27% (2018) to 6.8% at close. (that’s a price move of some 3%).

It’s now entirely likely G-Secs will be sold later, or RBI will be much more active in the bond market. With deflation likely in two weeks, printing money isn’t a bad alternative, to pay those that RBI buys bonds from. But if RBI chooses not to, gilts are going much lower.

  • Anoop says:

    >Deepak,

    Does it mean that the time to sell Gilt fund have come?? I am sitting on losses.

    If I see a bounce then i should exit and later re enter.

    What do you say??

    Thanks,
    Anoop

  • Anonymous says:

    >This is a good chance for small investors to get out of Gilts and buy later. Government has no choice but to pay higher yields for their Market Borrowings. Those who went to Gilt Funds lately will regret.

    I am selling my Gilt Funds which I bought in Sep. 08 and getting into Short term Debt Fund as temporary parking place till Gilt Funds come down and/or Equity Funds come down.

  • Anonymous says:

    >Inflation in items you need and deflation in items you cannot afford.

  • Anonymous says:

    >Hi Deepak,

    I am also in same situation as Anoop is in. Around 7% losses in gilt fund. Is it time to book your losses?

    Thanks,
    Gaurav

  • Deepak Shenoy says:

    >I should write a post on this, but here’s what I’m saying:

    1) 7% loss – if the stop loss has been 10% and you ever made a 3% profit then yes, respect your stop loss.

    2) I’m not quitting just yet. There’s another 10k cr. auction on mar 20, and if yields again break down I will look to reconsider. I still believe 4% yields are likely this year.

    But I would say stick with your stop loss – mine is still 5% away.

  • Boundlessdreamz says:

    >What is a good place to know more about bonds,gilts and yields.? I don’t understand how these instruments work.