In a bid to infuse liquidity into the system and keep bond yields under check, the RBI had announced its first outright open market operations (OMOs) – purchase of government bonds – for this fiscal amounting to ₹10,000 crore. But the results of the auction held for the OMO purchase today shows that the RBI rejected all the bids amounting to ₹66,473 crore.

The RBI had notified three government securities for purchase – 6.97 per cent GS 2026; 6.45 per cent GS 2029; and 6.68 per cent GS 2031. Against these, the RBI received bids amounting to ₹23,049 crore; ₹29,876 crore; and ₹13,548 crore, respectively. The central bank has rejected all the bids.

While the details on yield and price will be available with the full auction results, it appears that the price/yield at which banks wished to offload these older bonds was unacceptable to the RBI.

“Participants may have offered low prices that was not acceptable to the RBI as the intent of the RBI is to nudge the system towards a lower yield. Interestingly, the RBI has just announced another operation twist signalling it’s future expectations,” says Soumya Kanti Ghosh, Group Chief Economic Advisor to State Bank of India.

The RBI announced a special OMO or operation twist (OT) of ₹10,000 crore today, using proceeds from the sale of short-term securities to buy long-term government debt papers. These are essentially liquidity-neutral, but help in easing yield on long-term bonds. Importantly, special OMOs also helps the RBI to anchor rates to its bidding.

According to a recent SBI report, the RBI has been largely successful in managing the yield movements in the current year. The RBI may have to continue to manage auction expectations more aggressively in coming days through OT so as to pull down the yields even further, the report said.

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