With banks asking for higher yields, the Reserve Bank of India (RBI) rejected all the three government securities that were put up for auction.

The government borrowed just Rs 11,327 crore out of its mobilisation target of Rs 26,000 crore. The setback happened at the weekly auction of three government bonds on Friday.

Banks and other market participants put in the bids at higher prices, thus disappointing the RBI which is desperately seeking for a smooth conduct of the government borrowing programme. The central bank rejected all the bids that it received for the benchmark 5.85% GS 2030, and did not devolve it on the primary dealers who underwrote the auctions.

“RBI should follow up the auctions with some follow up measures like the OMOs (open market operations) or the operation twist to surprise the market. Even the schedule for the GSAP (government securities auction programme) is announced in advance so that the market can plan accordingly,” said Vijay Sharma, executive vice president at PNB Gilts Ltd.

Last Friday, the RBI had purchased Rs 1,600 crore worth of government bonds from the secondary market ahead of its announced GSAP programme.

Prices of government securities (G-sec) rose on Friday after the previous day’s sharp fall as the RBI did not devolve the 10-year benchmark on primary dealers, despite rejecting all the bids for it at the auction.

“RBI’s rejections are not sustainable. It has to come to the market for a huge borrowing programme of Rs 7.24 lakh crore during the first half of the current financial year. It has to face the market realities. Bond holders want better realisation for their investments,” said a banker on condition of anonymity.

The 10-year benchmark bond carrying a coupon rate of 5.85% rose by 27 paise at Rs 98.275 compared to the previous close at Rs 98.01. The yields on the bond came down by 4 basis points to 6.08%.

The government was planning to borrow Rs14,000 crore through this bond . The government borrowed Rs 5,090 crore through the auction of the government bond maturing on 2022 with a coupon rate of 3.96% (against the notified amount of Rs 3,000 crore) and Rs 6,236.80 crore via auction of the 6.76% GS 2061 (against the notified amount of Rs 9,000 crore).

The other issue bankers have is the inverted yield curve, with the yield of the nine-year instrument at 6.5044%, higher than that of the 10-year’s 6.0885%. Private bankers who had met RBI last week had suggested conducting OMOs in the 8-year and 9-year bonds so that they can offload their investments.

G-Sec prices had tumbled on Thursday as the RBI purchased some of the securities at lower than the previous closing price due to lacklustre demand.