MUMBAIL The Reserve Bank of India cancelled a scheduled bond auction on Friday, triggering a relief rally in the bond yields, which climbed 23-month high a day earlier amid concerns over higher-than-expected fiscal deficit projection for the next fiscal year.
The central bank did not receive any bid for sovereign bonds worth Rs 11,000 crore, a move that arrested sharp rise in the benchmark bond yields. Bond yields and prices move in opposite directions.
During the day's trading it shot up to 7.66% but later it pared losses later to close at 7.56. This is the third time since December last week that the central bank has cancelled an auction.
"The yield spike is completely unexpected. The cancellation has helped the market. RBI is clearly not comfortable with the sudden spurt in yields," said a dealer from a large bond house.
Two set of government bonds with four and 10 year maturities were up for auction. In the past six month, the benchmark bond yields shot up about 110 basis points pulling prices down.
Similarly on December 29, the central bank did not accept any bids for another two series of sovereign bonds with four and 13-year maturities, auctioned for Rs 11,000 crore collectively. Bids received were not as per expectation of RBI, dealers said.