MUMBAI, April 6: In tune with the market expectations, the Reserve Bank of India on Monday fixed the coupon of the Rs 4,000 crore five-year government paper at 11.10 per cent. The central bank received a record 285 bids worth Rs 6617.50 crore and made partial allotments to 190 bidders.Buoyed with the phenomenal response to the first tranche of government borrowing in the current fiscal, the Reserve Bank of India announced fresh float of a Rs 4,000-crore issue.
The eight-year paper will be auctioned on April 15. The government's borrowing programme in 1998-99 is pegged at Rs 55,000 crore.
Dealers expect the eight-year paper to have a cut-off yield of 11.35 per cent. In the secondary market, the eight-year is trading at 11.50 per cent.
At Monday's auction, there was no devolvement on the RBI or the primary dealers. The cut-off yield of the four-year paper was fixed at 11.10 per cent and weighted average yield at 11.01 per cent.
In the last financial year, the coupon on a five-year paper was fixed at12.69 per cent in May and 11.15 per cent in August. "The fact that coupon on a paper of similar maturity is fixed at 11.10 per cent is a clear indication that the interest rates are heading southwards. "The Reserve Bank will certainly lower the yield-to-maturity (YTM )on the ten-year paper," dealer with a private bank said.
In the secondary market, yields of long-dated papers went up. Dealers said there was not much trading in the new paper as a section of the market expected a cut-off yield of 10.90 per cent to 11 per cent.
This, along with the announcement of a fresh auction of Rs 4,000 crore eight-year paper, proved a dampener to the prices moving up in the secondary market.
Expectations on the cut-off yield of the five-year paper were revised downwards after the RBI last week announced a 100 basis points cut in the repo rate to 7 per cent and the bank rate was slashed to 10 per cent. "Today's cut-off yield was related to the market. Any price appreciation in the new paper is unlikely," dealer with aprivate bank said. The fresh float of another Rs 4,000 crore eight-year paper was meant to mop up excess liquidity in the banking system. About Rs 1,300 crore will be infused into the system on April 11 when the second stage of 25 basis points cash-reserve ratio (CRR) cut will take effect. Besides, 364-day treasury bills worth Rs 2,000 crore will be redeemed on April 10. On Monday, the central bank mopped up a staggering Rs 6,407 crore through the fixed rate four-day repo.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
