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Informist, Wednesday, Apr. 16, 2025

 

By Srijita Bose and Vidhushi Rajpurohit

 

MUMBAI – Market participants expect the 7.32%, 2030 government bond to be sold the most at the Reserve Bank of India's auction under its open market operations to buy government bonds Thursday. This is the first time the RBI has offered to buy this bond under an OMO auction and traders said with a large chunk of this bond in their held-to-maturity portfolio, this is likely to be tendered the most, dealers said. Domestic banks are expected to tender most of this bond at the auction. This bond is expected to be tendered at a price of INR 105.05, a discount of 15 paise to the closing price Wednesday and at a slightly higher yield than the 6.20% last traded yield.

 

At the OMO auction Thursday, the RBI will buy INR 400 billion of the 7.37%, 2028; the 7.32%, 2030; the 6.54%, 2032; the 7.18%, 2033; the 7.54%, 2036; and the 7.23%, 2039 gilts. This OMO auction buying will be over and above the INR 800 billion of OMO auction purchases the RBI had earlier said it will do this month. Since Jan. 30, the central bank has already bought nearly INR 2.85 trillion worth of gilts through OMO auctions.

 

For the 7.37%, 2028 bond, dealers said a chunk of the stock is expected to be sold by a very large state-owned bank along with other domestic banks. This bond too, has been sought for the first time by the RBI at an OMO auction so far this year.

 

However, lower quantum of this bond is expected to be tendered as this is being held in banks' trading books and hence it doesn't make sense to sell this bond at a discount to market price, dealers said. Also, expectations are that secondary market prices will rise as rate cut expectations firm up. Some traders also expect the 7.23%, 2039 bond to be tendered the most from banks' held-to-maturity books as INR 1.17 trillion of these bonds are outstanding, they said. 

 

State-owned banks are expected to be the biggest sellers at the auction as they have most of the bonds in the held-to-maturity books, dealers said. Foreign banks and private sector banks are expected to be the next biggest sellers of these bonds, they said. Mutual funds and insurance companies are not expected to participate much at the OMO auction as they either do not hold these bonds or as they will find secondary market prices more lucrative to offload gilts.

 

"Most people will want to sell the bonds from their HTM books because the 5% restriction is not there for OMOs, even though some of these bonds are there in trading books too," a dealer at a primary dealership said. "These papers are mostly deep in-the-money for PSBs (state-owned banks), and market has moved so much, so either way they will get a good profit on these papers even with deep discounts."

 

Banks have a 5% limitation on selling gilts from their held-to-maturity portfolios during the year. However, this limit does not apply to gilts sold to the RBI at OMO auctions. This provides banks an opportunity to sell bonds from their held-to-maturity books, dealers said. 

 

Traders said the papers will likely be tendered at 15–20 paise below prevailing market prices, with some expecting an even deeper discount of nearly 30 paisa for the 7.54%, 2036 bond and the 7.23%, 2039 bond, dealers said. Others also expect some of the bonds, such as the three- and five-year papers, to have lower discounts, either at par with market levels or about 5–10 paise lower. Details of a median of cut-off prices for all the bonds are given below: 

 

Security	Current outstanding amount of the bond (in INR trillion)	Wednesday's closing price (in INR)	Expected cut-off price at OMO auction Thursday (in INR)
7.37%, 2028 bond	0.75	104.05	103.75
7.32%, 2030 bond	0.70	105.20	105.05
6.54%, 2032 bond	1.56	101.28	101.13
7.18%, 2033 bond	2.01	105.09	104.84
7.54%, 2036 bond	1.54	108.25	107.95
7.23%, 2039 bond	1.17	106.37	106.07

 

End

 

Edited by Ashish Shirke

 

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