Bond houses took about Rs 17,864 crore worth of unsold benchmark papers on their books after the central bank did not accept higher yield bids that traders sought in the primary bond sale Friday. The central bank obliged just two competitive bids of Rs 125 crore at 6 percent.
“Market confidence is fading due to repeated devolvements,” said the managing director at a large foreign bank. “Traders may face mark-to-market losses with sovereign and corporate funding costs likely going up. RBI may have to come to buy bonds next week without which yields are likely to rise further.”
New Delhi’s gross market borrowing has jumped to Rs 12 lakh crore this financial year from Rs 7.80 lakh crore estimated earlier.
Cash-strapped states are also raising money.
The benchmark bond yield dropped to 5.89 percent at the beginning of the month after touching a high of 6.22 percent in August.
The gauge rose about five basis points to close at 6.04 percent Friday.
A day earlier, the RBI announced buying another Rs 10,000 crore worth of long term bonds selling an equivalent amount of shorter duration papers. This followed a failed open market operation, scheduled on Thursday, when RBI aimed to buy Rs 10,000 crore worth of bonds.
Earlier on September 11, bond houses took about Rs 17,970 crore worth of unsold papers on their books.
On August 28, Rs 17,984 crore worth of the same benchmark paper devolved following another such weekly auction on August 14, when about a fourth of the Rs 30,000-crore worth of bonds could not find buyers.
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