RBI announces G-SAP 2.0 auction; includes illiquid paper

The total trades took place in an announced bonds on Thursday is just 10% of the total trades of most liquid paper in the market.

The Reserve Bank of India (RBI) on Thursday announced a second tranche of purchase of government securities under Government Securities Acquisition Programme (G-SAP 2.0) worth Rs 20,000 crore, but included illiquid papers for the second time in a row.

This time, the central bank included 6.18%-2024, 6.97%-2026, 8.20%-2028, and 6.79%-2029 gilts, which have a low trading volumes in the market. The total trades took place in an announced bonds on Thursday is just 10% of the total trades of most liquid paper in the market.

“Currently banks and PDs are stuck with a lot of illiquid papers due to the devolvement which took place in some weekly bond auctions, so RBI is trying to buy these papers under G-SAP and selling more liquid papers to make it more liquid,” a fund manager with a mid-sized fund house said.

The RBI, in a weekly bond auction to be held on July 15, is offering two most liquid papers such as 5.63%-2026 and 6.64%-2035. The multiple price method will be followed in which each successful bidder pays the price stated in his bid. In ‘uniform price’ auctions, all successful bidders pay the same price that is cut-off price at which the market clears the issue. So far, the RBI had purchased nearly Rs 1 lakh crore under G-SAP 1.0 and planned to buy Rs 1.2 lakh crore worth of outstanding government securities during July-September of 2021.

During the first G-SAP 2.0 auction on July 8, which was announced in the governor’s statement on June 4, the RBI purchased 8.24%-2027, 7.17%-2028, 7.59%-2029, 7.88%-2030, and 7.57%-2033 gilts. However, during G-SAP 1.0, the central bank had mostly purchased 5.85%-2030, which was most liquid and benchmark bond before announcement of new one 6.10%-2031.

The announcement of G-SAP, dealers said, was made to anchor the bond yields and make hefty government borrowing cheaper. During financial year 2020-21, the government had borrowed around Rs 12.8 lakh crore and another Rs 12.05 lakh crore is scheduled for current financial year.