So far this fiscal, the government has raised Rs 5.84 trillion in bonds from the market.
“The devolvement at the auction on Friday, is a sign of investor 'fatigue', and the markets' appetite for further supply will be limited, in the absence of some support from RBI,” said Badrish Kulhalli, head of fixed income at HDFC LIfe Insurance.
The RBI kept policy rates unchanged, and economists say the room for aggressive rate cuts is limited. Inflation is on the rise, albeit should start coming down in the second half as per RBI estimates. But the bond market is more or less certain that rate support would no longer be there.
“With US yield up and higher than expected CPI market have given hope on October cut, market will now look for support from RBI in form of OMO,” said Jayesh Mehta, head of treasury of Bank of America.
The RBI can also do operation twist, in which it simultaneously sells short bonds and treasury bills for longer maturity government securities.
"Expectations of OMO or Operation Twist is likely to build up in the coming days,” said Kulhalli.