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India central bank reverts to multiple price auctions after 3 years
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The Reserve Bank of India (RBI) will conduct auctions for all central government securities through multiple price-based method from this financial year, nearly three years after it changed its methodology, the central bank said on Monday.
Barring the ultra-long duration which consists of bonds maturing in 30 years and above, the RBI conducted auctions for bonds through uniform-based pricing since July 2021.
Under the multiple price auctions, buyers are allotted bonds at the price they bid at, while uniform pricing means bonds are sold at the cutoff level.
India aims to borrow 7.50 trillion rupees ($90 billion) via bonds in April-September, 53% of its annual borrowing target of 14.13 trillion rupees.
"All securities under the market borrowing programme shall, henceforth, be auctioned using multiple price auction method," the RBI said in a statement, following a review of market conditions.
"This was a demand from market participants, and this step is good for overall market development," said Vijay Sharma, senior executive vice president at PNB Gilts.
"Multiple price auction is a winner's curse, but since the broader market conditions have changed, we may not see any major negative reaction in yields," a treasury head at a private bank said.
Bond auctions witnessed constant devolvement in 2021, while traders bud at lower prices many times, leading to higher-than-estimated cutoff yields impacting overall appetite, forcing the central bank to shift to uniform pricing for most liquid papers.
The RBI's move will improve liquidity in securities as the ownership will not be concentrated with few large players, that are heavy on cash, traders added.
"There was no reward for intelligence of market makers, which in this case is primary dealers, and uniform pricing, had given rise to lazy trading practices," a senior trader at a primary dealership said.
Arun Srinivasan, head of fixed income at ICICI Prudential Life Insurance had in February predicted a "strong possibility" that the central bank may revert to multiple price auctions for the new borrowing calendar, citing improved conditions as compared to 2021.
($1 = 83.3630 Indian rupees)
