Govt May Borrow Towards Cancelled Debt Auctions, Says Report

The Centre had cancelled its last two weekly debt sales worth Rs 24,000 crore each as global yields surged and as the state had achieved a comfortable cash balance for the fiscal year

New Delhi: The central government likely to conduct more debt auctions after its last scheduled tender for the fiscal year on Friday to take advantage of the relatively low cost of borrowing, people familiar with the development told Reuters.

The Centre had cancelled its last two weekly debt sales worth Rs 24,000 crore each as global yields surged and as the state had achieved a comfortable cash balance for the fiscal year that ends March 31.

However, in a surprise move for markets, the government on Monday said it will borrow Rs 23,000 crore at the last bond sale for the current fiscal year on February 25.

According to sources, while the government had a comfortable cash position even without further auctions, it would consider completing its planned borrowing if market conditions were appropriate.

A senior official told Reuters, “(We) will not commit if this would be our last borrowing for the year. We are watching the yields and will take a call accordingly.” A second source said it would be recommended for the government to borrow now to take advantage of the relatively lower yields.

The 10-year benchmark yield hit a two-and-half-year high of 6.95 per cent after the government announced a record Rs 14.95 lakh crore worth borrowing for FY22-23 during the Budget.

The yield, however, has retraced almost all its post-Budget gains after the auction cancellations and is currently at 6.73 per cent.

The finance ministry did not respond to mail seeking comments.

Though the government cited the official reason for the cancelled auctions as a comfortable cash balance, sources had told Reuters at the time officials were concerned about the sharp market reaction after the announced borrowing plan.

However, traders warn new auctions could drive yields higher again.

“The belief is that we are done with the borrowing for this year. If the government decides to borrow towards the cancelled auctions later, it will lead to a lot of pressure on bonds, especially in the current geopolitical backdrop,” a senior trader at a foreign bank said.

"If we have more auctions this year, yields will likely climb back to 6.95 per cent levels,” a trader at a private bank said.