At the first buyback held last week, the RBI received bids worth Rs 27,256 crore, of which the central bank accepted Rs 23,856 crore or 95% of the notified amount, data showed.
Buybacks are a way for the government to pay off debt for next fiscal year to reduce its gross borrowing. It also results in RBI infusing durable liquidity into the system.
The RBI bought back five government bonds maturing in 2026 at Thursday’s auction. The 5.63% 2026 government bond saw the highest demand with bids received at Rs 26,616 crore. Of this, the central bank accepted Rs17,402 crore.
“The strong demand at the buyback auction indicates that banks may have taken this opportunity to lighten their HTM book, especially because there are no OMOs on the horizon,” said Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank.
“In a buyback, banks get to sell short-term bonds and replace them with longer maturity papers and lock-in yields. Further buyback auctions will depend on how the government spending pans out and on evolving liquidity conditions.”Bonds maturing in FY27 are more than double versus this year at Rs 6.48 lakh crore and are consistently high until 2032. The government has also budgeted Rs 2.5 lakh crore for bond switches this year, 60% more than the previous year.In a bond switch, the government replaces bonds maturing in the near term with long-term debt. The RBI, on behalf of the government, is scheduled to conduct an auction on Monday to switch government securities worth Rs 25,000 crore. It will conduct the auction to switch nine government bonds maturing between 2026 and 2029 for papers with maturity between 2032 and 2062.
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