RBI switches to multiple-pricing in weekly debt sale

Mumbai: The Reserve Bank of India's decision to sell $2.3 billion in government debt through the unpopular 'multiple pricing' method could push yields higher when trading resumes on Wednesday after a holiday, dealers said.

The RBI also unexpectedly announced it would sell 90 billion of the recently issued 2024 bonds at its weekly auction on Friday, which could also help push yields higher due to new supply, according to traders. India is due to sell a total of 140 billion rupees ($2.33 billion) at the auction. 

Multiple price auction tends to be unpopular because investors who bid for the debt get the allocation at the highest price they've offered, in what is popularly known in India as "winner's curse". The RBI last used this auction method in May 2013. Since then, the central bank sold debt through what is called uniform pricing, in which all bidders get the debt at the same cut-off price.

The RBI did not say why it had opted for multiple pricing in its statement. Traders said the RBI was likely seeking to obtain the highest price for the debt even as one senior trading official with a foreign bank said multiple pricing 'ensures the price discovery is much more efficient' since it better reflects the different market views on pricing.

Traders also said they had not expected the RBI to sell an additional tranche of the new 10-year 2024 bond this week after selling the debt for the first time on Friday.  The new 10-year 2024 bonds closed up 4 basis points at 8.43 percent on Monday.