Govt kicks of Rs 1,17,000 borrowing programme

Govt kicks of Rs 1,17,000 borrowing programme

MUMBAI, APR 8: The Centre will kick off its Rs 1,17,000 crore gross borrowing programme for the fiscal 2000-01 by re-issuing the 12.29 per cent 2010 bond through a price-based Rs 5,000 crore auction on April 11.

The cut-off yield of the 10-year paper will certainly drop as the interest rates have started moving southwards with banks slashing their prime lending rates and the central bank drastically prunning the yield on treasury bills ever since the slew of rate cuts was announced last week.

Bond dealers said they expected the cut-off yield at the coming auction at around 10.40/45 per cent. The auction size was lower than their expectations. "The market was expecting the auction size to be around Rs 10,000 crore. We had been cautious this week as nobody wanted to book a loss by going long on bonds ahead of the auction announcement," the treasury head of a private bank said.

"Given the low interest rate scenario, the Centre is likely to complete 50 to 75 per cent of the targeted borrowings by July," he added. The government securities rose after the auction announcement, with long term bonds quoting 20-30 paise higher. The 12.29 per cent 2010 paper rose by 60 paise to end at Rs 111.60/70 as against Friday's closing levels of Rs 111.05/10. The yield-to-maturity (YTM) on the bond works out to 10.36 per cent.

Dealers said they expected the Centre to borrow Rs 25,000 crore this month, out of the gross borrowing target of Rs 1,17,000 crore for the fiscal. "The quantum of borrowing may be large this month, as the interest rate scenario is favourable," a bond trader with a primary dealership said.

The RBI will declare results of the auction on April 11, with payment by successful bidders to be made on April 13. The call rates perked up on after touching a low of 0.25 per cent on reporting Friday. Fresh demand for funds at the start of the reporting week saw call rates rise to the new refinance levels of 7 per cent.

As a result, the central bank received no bids at its daily repo auction. The RBI had received 30 bids totalling Rs 12,085 crore on at the repo auction on Friday.

"During the week, traders had borrowed from the call market and placed the funds in RBI's repo window. This was since call rates were quoting below the fixed repo rate of 5 per cent," a bond dealer said. The outstanding amount locked in repos is around Rs 19,000 crore.