Immediately after the auction, the RBI announced that the paper will be available at its sale window at a price of 100.10 with effect from Thursday. "The message is clear. By offering a coupon of about 11.88 on the nine-year paper at its sale window, the central bank has demonstrated its will to hold on to the prevailing yield curve," said an official of the Securities Trading Corporation of India.

This is the highest devolvement on the RBI at a primary auction of gilts this fiscal year. Earlier, on April 15, RBI took about 40 per cent devolvement of the eight-year, Rs 4,000 crore paper.

"It would have been better if the RBI had advised the government to go in for private placement of this security," an analyst in a leadingbrokerage house said. Earlier, the RBI rejected all the bids from primary dealers and satellite dealers for underwriting commission.

The high devolvement will increase the RBI's net credit to the central government considerably. RBI governor Bimal Jalan had warned via the credit policy that the RBI credit to the government was rising and is a matter of concern. The RBI received 130 bids for Rs 3,312 crore, out of which it accepted only one bid worth Rs 50 lakh. "The RBI must have rejected the bids as banks may have quoted rates at 12.25-30 per cent. The bids are in line with the secondary market where the 13.05 per cent 2007 gilt was trading at 12.10 per cent," a dealer said. At the kerb, the 12 per cent 2008 was quoting at 12.05 per cent down from 12.15 per cent in the morning.

"Secondary market yields are likely to get realigned after the RBI signal that it thinks interest rates are not on the rise," a debt market analyst in an investment bank said.

Money market sources said that the RBI on Tuesdayrejected the underwriting commission put forth by the primary dealers and satellite dealers for its Rs 4,000 crore nine-year paper as the amount quoted by PDs and SDs was more than a rupee.