Market was in a big shock yesterday when the Treasury bill auction of Rs 11,000 crore was rejected, which basically means that liquidity in the system has increased by Rs 11,000 crore.
Bond market is trading cautiously ahead of Reserve Bank of India’s open market operations (OMO) latter today. Bond market seems to be in state of confusion as yields have risen sharply in past 72 hours and are continuing to remain high on expectations that the central bank will keep liquidity under squeeze, notes CNBC-TV18’s Latha Venkatesh.
Market was in a big shock yesterday when the Treasury bill auction of Rs 11,000 crore was rejected, which basically means that liquidity in the system has increased by Rs 11,000 crore. If the bids had been accepted, the money would have been absorbed.
The market is also wondering about the bond auction scheduled tomorrow where the government will be selling bonds. If the dealers continue to expect higher yields they may reject this bond sale as well. If government bond auction is also rejected then the monetary policy’s intent of keeping money markets tight would not be served.
More importantly today, the market is going to buy bonds from the Reserve Bank for the open market operation (OMO) the central bank is clearly wants to keep money tight.
Thus, there is a bit of confusion in the market as to where exactly bids should be made.
The dollar has not really cheapened in spite of fairly strong monetary action. In spite of almost tepid or dovish statement by Ben Bernanke on Wednesday, the rupee has not recovered, still targeting the 60 mark against the dollar. And hence the gilt market is also cautiously expecting RBI to go ahead with the auction and ensure tightened money supply in the system.