The Reserve Bank of India's first bond buyback in FY27 received a lukewarm market response, attracting significantly less than the offered amount. According to reports from The Economic Times, the ₹30,000-crore bond buyback received bids of ₹7,694 crore, with the central bank accepting ₹7,388 crores of these bids. The muted response came despite deficit liquidity conditions in the banking system, as banks held back anticipating future inflows and preferring short-term papers. As Alok Singh, head of treasury at CSB Bank, explained, "Public sector banks usually participate in such auctions and many expect cash to come in due to FCNR(B) inflows. So, they did not sell these securities. Plus, these are short-term papers, which will mature in a year or so."
Banking system liquidity was in a deficit of ₹41,562 crore as of June 28, as reported by The Economic Times. The daily average liquidity in June so far stood at ₹80,519 crore, representing a significant shift from the previous months. The daily average surplus stood at ₹1.62 crores in May and ₹3.80 lakh crore in April, according to RBI data. Public sector banks typically participate in such auctions, expecting cash inflows due to FCNR(B) inflows, which led to their decision not to sell securities in this auction.
The benchmark 10-year government bond yield eased two basis points to 6.75%, reaching its lowest level since March 20, as reported by The Economic Times. The 10-year yield has eased over 22 basis points so far in June, supported by a 20% decline in oil prices to $72 per barrel. The fall in bond prices is also supported by overseas portfolio inflows into Indian government debt, which are at a record high in June at ₹40,000 crore, according to CCIL data. This combination of factors has created favorable conditions for bond yields to reach multi-month lows.
The buyback auction included four papers with yields ranging from 7.33% to 8.24% for maturities between 2026 and 2027, as reported by The Economic Times. The auction structure included 7.33% GS 2026, 5.74% GS 2026, 8.15% GS 2026 and 8.24% GS 2027 papers, reflecting the central bank's diversified approach to managing liquidity in the financial system. Market participants noted that banks preferred short-term papers that would mature in a year or so, given the current liquidity conditions and expectations of future cash inflows.
