RBI set to buy back bonds worth Rs. 60000 crore

The bond market will be closely watching the RBI buyback of securities worth Rs. 60,000 crore on behalf of the government, as the two previous buybacks this month did not achieve the desired results.

With banks offering to sell bonds at higher prices — or lower yields — the RBI rejected most of the bids in the previous two auctions, accepting bids worth only Rs.12,583 crore out of a total notified amount of Rs. 1 trillion.

The RBI is looking to inject funds into the banking system, which is experiencing tight liquidity due to low spending by the government. Low spending due to the ongoing national election has led to a build-up in the government’s cash balances and a subsequent cash deficit in the banking system. Liquidity deficit is expected to widen further in the next few days as there is an outflow of goods and services taxes.

“The market will again try to get another 3-4 basis points better than the prevailing yields. The bids are likely to be aggressive, they may ask for lower yields,” Vikas Goel, managing director and CEO at PNB Gilts, said.