The Reserve Bank of India on June 4, 2024, announced the fifth tranche of buyback of dated securities worth Rs 30,000 crore through a multiple price-based auction.
The auction is scheduled to be conducted on June 6, 2024. As many as five securities are announced for the buyback auction. They include 7.35% GS 2024, 8.40% GS 2024, 6.18% GS 2024 maturing on June 22, 2024, July 28, 2024 and November 4, 2024 respectively.
Further, an FRB 2024, a floating rate bond maturing on November 7, 2024, and a 9.15% GS 2024 maturing on November 14, 2024, are part of the buyback list.
There is no notified amount for the individual securities within the aggregate ceiling of Rs 30,000 crore. Interested participants should submit the offers for the auction in electronic format on the Reserve Bank of India Core Banking Solution (E-Kuber) system between 10:30 a.m. and 11:30 a.m. on June 6, 2024. The results will be announced on the same day and settlement will take place on June 7, 2024.
However, the buyback auctions have failed to elicit strong participation from the market, with the RBI and the government accepting only a small portion of the bonds that the Centre has offered to buy back. This is likely because of discomfort with the high prices that banks have been offering to sell the bonds back to the government.
RBI informed that the government retains the discretion to accept more or less than the notified amount of Rs 30,000 crore. It also holds discretion in accepting or rejecting offers without assigning reasons thereof.
Government securities (G-Secs) buybacks are a means of the Reserve Bank of India's Open Market Operations (OMOs) to manage market liquidity, wherein the government redeems existing securities prematurely from their holders. Here government is redeeming securities scheduled for redemption this year to inject liquidity into the market, majorly into the bank as they will be repaid before the bond's maturity.
Government securities (G-Secs) are debt instruments that act as proof of a government's debt obligation to the buyer and thus come with no risk in the form of treasury bills or long-term bonds. The coupon rate of interest on government bonds will be credited to the investor twice every year.
Typically, the government's decision to buy back bonds maturing in a short term lowers the yields. But as the first round of election results came, the 10-year benchmark bond yield saw its biggest spike in the last eight months over fears of the National Democratic Alliance (NDA) not securing a clear majority. India's benchmark 10-year yield surged to 7.01 per cent earlier in the day from its previous close at 6.94 per cent.
