CB rejects most bids for 3-yr bonds as some bids top 44%

The bids received for the three-year bond topped an unprecedented 43.99 percent at the bond auction held yesterday. 

This was the first bond issue since the Central Bank raised its key policy rates last week.
The Central Bank yesterday issued Rs.30.0 billion and Rs.40.0 billion in three-year and seven-year bonds, maturing on June 01, 2025 and July 15, 2029, respectively, at coupon rates of 17.0 percent and 20.0 percent.  Although the Central Bank accepted the full amount it offered under the seven-year bond, at an average weighted yield of 26.51 percent, it accepted only Rs.3,548 million under the three-year bond, rejecting most of the Rs.36,581 million bids received.

The bids ranged from a low of 31.76 to a high of 43.99 percent, reaching more than twice the coupon rate of 17.0 percent. 

The three-year bond weighted average yield reached 28.18 percent yesterday, up 441 basis points from the auction held a fortnight ago.  There were no previous seven-year bonds for direct comparison of the yields but the eight-year bond, which offers some equivalence, fetched 20.74 percent at the auction held two weeks ago, reflecting a jump of 577 basis points. 

After the auction, the Central Bank said it would keep open the bids for the seven-year bond till 4:00 p.m. on Thursday, at the weighted average yield determined at the auction, up to 20 percent of the amount offered.  The sharp increase seen in the three-year bond could be a harbinger for an equally sharp increase in yield at the bill auction scheduled for tomorrow.