The Reserve Bank of India (RBI) has sought the industry’s views on reviving the multiple-price method for government bond auctions instead of a Covid-era practice that was initially intended to have only a temporary run.
Another point discussed between the RBI and market participants was the idea of conducting a single auction of the 10-year benchmark bond once a month instead of the current practice of two sales of the benchmark paper every month, sources aware of the developments told ET.
“The multiple-price method of auctions carries with it the risk of what the market calls the “winner’s curse” and hence ensures that pricing is done with a balanced view. The uniform-price method is better from the perspective of the issuer (the government) when market conditions are volatile,” one of the sources said.
An email sent to the RBI requesting a comment on the matter did not receive a response by the time of publication.
The discussions with market participants were held ahead of the release of the Centre’s borrowing calendar for the first six months of FY25. The RBI is the government’s debt manager. Yields on government bonds determine the cost of borrowing for corporate entities.
Sources said that market participants had also requested that the RBI contain the quantum of shorter-tenure securities up for sale as demand from foreign investors would likely be seen in papers maturing in seven years and above. The government is scheduled to sell bonds worth Rs 14.13 lakh crore in FY25.
In July 2021, RBI said it would use the uniform price auction method for primary auctions of most government bonds, seven years after it said that such auctions would be held via the multiple price method.
When the RBI announced the shift back to the uniform price, the central bank was faced with multiple episodes of weak demand for government bonds amid a huge increase in public borrowing due to the Covid crisis.
