After
three years, RBI returns to multiple price auctions for govt. bonds
The
Reserve Bank of India (RBI) will conduct all auctions of government securities
under the market borrowing programme of the Government of India using the
multiple price auction method, the central bank said on Monday.
RBI
has changed the methodology after nearly three years. The change in methodology
comes as robust demand is expected for government bonds due to various factors
like inclusion in JP Morgan s Emerging Market Bond Index and rate cut
expectations.
Since
July 2021, the RBI has been conducting auctions for bonds, under uniform
pricing, except for ultra-long duration bonds maturing in 30 years and beyond.
In
the multiple price-based auction system, successful bids will be accepted based
on the quoted yield or price for the security specified by the bidder. Under
the uniform pricing method, bonds are sold at the cutoff level.
Normally
uniform price is deployed when the market is well-supplied and there is
inadequate demand. But it is the reverse situation now; the demand-supply
equation seems to be in favour of demand. So, it is a good market now in the
sense, the yields look like coming off and prices going up. In that scenario, a
multiple price auction will be better, said Vikas Goel, Managing Director and
Chief Executive Officer, PNB Gilts.
One,
the price discovery will be more efficient. Second, there will be more
post-auction results trading activity. Third, it avoids what I call lazy
bidding. So, you have to think before you bid because there is a winner's
curse. And fourth, overall, I would tend to think that the yield at which the
issuer can raise money will be on average lower as compared to a uniform price.
So, it is a win-win, Goel added.
The
gross borrowing for the first six months of the upcoming financial year stands
at Rs. 7.50 trillion, out of the total borrowing target of Rs. 14.13 trillion.
In a departure from the usual pattern of issuing green bonds in the latter half
of the year, the Union government plans to issue green bonds worth Rs. 12,000
crore in the first half of 2024-25. These bonds shall be issued in two tranches
of Rs. 6,000 crore each, with a maturity period of 10 years.
A
little more trading will take place. People will take better funds. Uniform
price auction is obviously less beneficial for people who want to take a view
on markets. It's a safer way of auctioning. This gives a little more spectrum
to various investors to play across the cost, said the treasury head at a
private bank.
From
an investor perspective, given that you're targeting to sell G-sec to a whole
host of people, it'll make it more attractive. It's no longer very safe and
mundane. It makes it a little more exciting for various people to participate,
the person added.
www.business-standard.com
dt. 02.04.2024