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Informist, Monday, Dec. 8, 2025

 

By Aaryan Khanna

 

MUMBAI – State-owned banks are not likely to show great interest in the bonds the Reserve Bank of India has offered to purchase in its first open market operation auction since May, dealers said. This lack of enthusiasm is expected to push up cut-off prices at the auction, offering some exits to other sections of the market.

 

In the first tranche of the two OMO auctions for December, the RBI announced it would buy seven bonds worth INR 500 billion. The RBI has offered to buy the 6.75%, 2029; the 7.02%, 2031; the 7.26%, 2032; the 6.79%, 2034; the 7.54%, 2036; the 6.92%, 2039, and the 6.67%, 2050 gilts at the auction. The quantum of individual gilts bought at the auction scheduled Thursday will be decided by the RBI, the central bank said.

 

"The RBI had called on Friday to take feedback on what bonds to announce in OMO, but of the bonds that we recommended none are part of the OMO," a dealer at a state-owned bank said.

 

The 2050 gilt is the longest maturity bond that the central bank has offered to buy this year. In auctions conducted between January and May, it bought only INR 6.75 billion of the 9.23%, 2043 gilt, the longest maturity on offer. Including secondary market purchases in January and November, the RBI's total gilt purchases have totaled INR 5.5 trillion in 2025. State-owned banks have been the biggest beneficiaries of the purchases and have shown robust treasury profits in both the March and June quarter, selling bonds from their held-to-maturity portfolios to the RBI at a profit.

 

Though some traders said the inclusion of the 2050 bond signalled the RBI's concern on high term spreads, others said the note of positivity was misplaced, since RBI Governor Sanjay Malhotra's comment Friday that the central bank was not looking to influence gilt yields through OMOs. Moreover, the bond is likely to be tendered poorly at the auction. Its indicative price Friday was INR 93.54, much lower than when it was issued at par in December 2020. Banks have parked some stock of the erstwhile 30-year bond in their held-to-maturity books, which has helped them avoid realising losses on the bond, dealers said.

 

"While we have the bonds, we are not happy with the selection," a dealer at another state-owned bank said. "Why would anyone want to book a loss in a bond like the 6.67% (2050) which is really just going to show up on your books as a big hole?"

 

Instead of public sector banks, private sector banks now see an opportunity to capitalise on the RBI's OMO purchases if the central bank accepts offers above market prices, dealers said. The auctions so far have been dominated by state-owned banks tendering bonds well below market prices from their held-to-maturity portfolios, crowding out other sections of the market. 

 

"The RBI may be looking to limit profit booking and instead drive the market prices up, which is why it has announced bonds like this," a dealer at a private sector bank said. "But yes, I don't think anyone would have stock of the 6.67%, 2050 bond in the money (showing a profit)."

 

The quantum of offers and the cut-off set by the central bank Thursday will also lend cues to benchmark bond yields. The 10-year benchmark yield has risen 2 basis points to 6.53?tween Thursday and Monday despite the Monetary Policy Committee cutting the repo rate by 25 basis points to 5.25% and the RBI's announcement of an INR 1-trillion OMO purchase in December. Traders remain confident that the central bank will announce further OMO auctions in the March quarter to buy gilts of up to INR 1.5 trillion.  End

 

Edited by Subhojit Sarkar

 

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