RBI schedules ₹25,000 crore bond sale for October 13; yields may open higher on Monday

The Reserve Bank of India (RBI) on October 9 announced an open market operation (OMO) sale of government securities worth ₹25,000 crore to absorb surplus liquidity from the banking system, a move that could put pressure on bond prices and push yields higher.

Market participants expect bond yields to open around 4-5 basis points higher on Monday following the announcement, as the central bank continues to manage liquidity conditions through securities sales and other monetary measures.

The auction will be conducted on October 13 through a multiple-price auction. The securities on offer include government securities maturing in 2030, 2031, 2032, 2033 and 2034, with coupon rates of 7.88%, 7.95%, 7.26%, 7.18% and 7.10%, respectively. The RBI said it may accept bids for less than or more than the notified amount.

RBI continues liquidity management

The latest announcement follows a series of OMO sales undertaken by the RBI to absorb excess liquidity from the banking system. Under this mechanism, the central bank sells government securities to market participants in exchange for funds, thereby withdrawing liquidity.

The latest operation comes amid continued efforts to manage surplus liquidity arising partly from foreign exchange market interventions and the unwinding of foreign currency non-resident (FCNR-B) deposit mobilisation measures.

In September, the RBI conducted an OMO sale programme worth ₹1 lakh crore across three tranches. The central bank offered ₹50,000 crore on September 17 and ₹25,000 crore each on September 21 and September 28.

Banks submitted bids exceeding the notified amounts in all three auctions. Total bids stood at ₹66,590 crore in the first tranche, ₹84,982 crore in the second and ₹67,655 crore in the third, indicating substantial demand for the securities offered.

CRR increase adds to liquidity pressure

The RBI has also been using variable rate reverse repo (VRRR) auctions to absorb surplus liquidity. On October 7, Governor Sanjay Malhotra said liquidity surpluses were expected to ease through natural factors during the current financial year.

The average daily surplus under the liquidity adjustment facility (LAF) stood at ₹5.9 lakh crore since the previous monetary policy meeting in August. According to the latest RBI data, the banking system’s liquidity surplus was ₹3.92 lakh crore on Thursday.

Separately, the RBI has raised the minimum daily cash reserve ratio (CRR) maintenance requirement for banks to 99% from 90% of the prescribed requirement, effective from the fortnight beginning October 16. The overall CRR rate remains unchanged.

Market participants said the combined impact of OMO sales and the higher CRR maintenance requirement could tighten liquidity conditions further. The extent of the impact on bond yields will depend on how banks and investors adjust to the additional liquidity drain.

The latest move underscores the RBI’s continued focus on absorbing surplus funds while keeping money-market conditions aligned with its monetary policy objectives.