Government to buy back sovereign bonds worth Rs 40,000 crore in a surprise move
Government to buy back sovereign bonds worth Rs 40,000 crore in a surprise move
The Centre will buyback securities worth Rs 40,000 crore, the RBI said in a release.
The securities offered for buyback are 6.18% GS 2024, 9.15% GS 2024 and 6.89% GS 2025, maturing on November 4, November 14, and January 16, the central bank said.
“There is no notified amount for the individual securities within the aggregate ceiling of ₹40,000 crore. Auction for securities will be conducted using multiple price method,” it added.
“The offers for the auction should be submitted in electronic format on the Reserve Bank of India Core Banking Solution (E-Kuber) system on May 09, 2024 (Thursday) between 10:30 a.m. and 11:30 a.m,” the release added.
The result of the auction will be announced on the same day and settlement will take place on May 10.
What is this buyback?
With this move, the Centre is choosing to repay a portion of outstanding debt before the dates of actual maturity of its bonds. Buybacks release liquidity into the banking system. Liquidity is in deficit of Rs 78,481 crore as on May 2. “The choice of securities suggests this buyback is a liquidity redistribution exercise by the government as they have clear visibility on their shorter-term funds,” said Vivek Kumar, economist at QuantEco Research.
“One could construe this as a yield management exercise, too. However, the RBI has alternate options with direct and indirect signaling potential,” Kumar said.
“There is liquidity tightness and government expenditure is unlikely to pick up before the new government takes charge. This should also help bring down yields at the shorter end,” said Alok Singh, group head of treasury at CSB Bank.
The central bank is also due to pay the government the annual dividend in May, which will further improve the government’s cash position.
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