The Reserve Bank of India (RBI) successfully conducted a buyback auction for government securities on Thursday, accepting bids worth Rs 24,934.4 crore, just shy of the notified amount of Rs 25,000 crore.
This is the second buyback operation by the central bank this month, and one of the most successful since such operations resumed in May this year, following a six-year pause. Institutions offered a total of Rs 33,201.4 crore in bids.
The RBI's renewed success with its buyback operations is attributed to softer bond yields, which have improved traders' profitability and made them more willing to sell bonds to the government. Since the beginning of 2024, yields on the 10-year benchmark government bonds have eased by 43 basis points, falling from 7.19 per cent on 1 January to 6.76 per cent as of Thursday. This decline in yields has helped make the buyback more attractive to market participants, who in previous auctions had been reluctant to sell due to unfavourable pricing.
The central bank accepted varying amounts for different bond maturities in the auction. For bonds maturing in 2025, the RBI accepted Rs 6,409 crore for 7.72 per cent securities, Rs 8,919.8 crore for 5.22 per cent bonds, Rs 8,127.9 crore for 5.15 per cent bonds, and Rs 605 crore for 8.20 per cent bonds. Additionally, Rs 872.6 crore was accepted for bonds maturing in January 2026 with a 7.59 per cent interest rate.
Buyback operations are part of the government’s strategy to use its cash reserves to retire some of its outstanding debt early, reducing its liabilities. These actions also provide a liquidity boost to the banking system, as banks are significant holders of government securities. As of 16 October, liquidity in the banking system, as measured by the RBI’s absorption of funds, stood at Rs 1.89 lakh crore.
