Soft Auction Spurs Sell Off

Indian bond markets were closed on Friday, but are expected to come under pressure today after a soft auction on Thursday.

Auction results from Feb 18:

• INR 20bn 3.96% 2022 bonds – yield: 4.3299% (prev. 4.2499%), cover: 4.54 (prev. 2.18)
• INR 110bn 5.15% 2025 bonds – yield: 5.5924% (prev. 5.9726%), cover: 1.55 (prev. 2.66); primary dealers took 97.3%
• INR 110bn 5.85% 2030 bonds – yield: 6.0596% (prev. 5.5410%), cover: 1.41 (prev. 1.83); primary dealers took 99%
• INR 70bn 2061 bonds – yield: 6.76% cover: 1.53

• The soft auction sped up the sell off in Indian debt, bonds were already under pressure after the RBI set high underwriting fees for primary dealers for the 2025 and 2030 issues, increasing speculation that the central bank wouldn't step in to support the sale.
• As it turned out primary dealers were saddled with the majority of the issue with the RBI unwilling to be lumbered with higher yields. The weak demand at the auction was reflective of doubts over the RBI's plans to support the bond market. Commentators are now calling for a calendar of OMOs from the RBI to create some certainty in the market.
• The RBI also announced state governments would auction INR 239bn of debt on Feb 23, a similar sale on Feb 16 saw spreads over core government debt widen. Typical extra yield was 91-106bps from 72-86bps in the prior week.