Bond auction, slated for March 26, cancelled over yield concerns

The last bond auction of this financial year has been cancelled by the government in view of its cash balance. The weekly auction of bonds worth Rs 20,000 crore was scheduled to happen on March 26.

"As per the revised Issuance Calendar dated February 01, 2021, for Government of India Dated Securities, the next auction is scheduled to be held on March 26, 2021. On review of position of cash balance, the Government of India has decided to cancel the above scheduled auction," the Reserve Bank of India (RBI) announced on Monday.

The decision to cancel the bond auction was on expected lines. Some traders were anticipating this move in the backdrop of expectations that the overall direct tax collection would exceed the revised target. Tax mop-up has turned positive at the end of the fourth quarter and the government is holding cash reserves with the central bank.

This would, in turn, soften the yields for government securities (G-sec) towards the end of the last quarter of this fiscal.

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According to the Revised Estimate, the gross borrowing for the current financial year 2020-21 was raised to Rs 12.8 lakh crore as against the budget estimate of Rs 7.8 lakh crore, registering an increase of 64 per cent.

"The gross borrowing from the market for the next year (2021-22) would be around Rs 12 lakh crore. We plan to continue with our path of fiscal consolidation, and intend to reach a fiscal deficit level below 4.5 per cent of GDP by 2025-2026 with a fairly steady decline over the period," Finance Minister Nirmala Sitharaman had said while presenting Union Budget for 2021-22 last month.

The government raises money from the market to fund its fiscal deficit through dated securities and treasury bills. As a result, net borrowing would come down to Rs 9.24 lakh crore for the next fiscal, while for the current fiscal it is estimated at Rs 10.52 lakh crore during 2020-21.

The Budget has pegged fiscal deficit at 6.8 per cent for the next fiscal, down from 9.5 per cent of the GDP in the current financial year. The fiscal deficit in revised estimate for 2020-21 is pegged at 9.5 per cent of GDP.

Since the decision was announced after market hours, investors can expect a bank and bond rally on Tuesday.