In a bond switch, the government replaces bonds maturing in the near term with long- term bonds.
Monday’s exercise is expected to reduce the redemption pressure in the next three fiscal years while also helping the government to manage the fiscal, economists said. Securities offered in the Monday’s switch auction-fourth such auction in the current fiscal-are of papers maturing in FY27, FY28 and FY29, and are being replaced with bonds maturing after FY32, a year where the redemption pressure is relatively less than previous years, RBI data shows.
The RBI accepted ₹17,274 crore in Monday’s bond switch auction, 54% of the notified amount, as market yields exceeded the central bank’s comfort. This move aims to reduce near-term redemption pressure and manage the government’s fiscal situation. The centre has budgeted ₹2.5 lakh crore for bond switches in FY26, with ₹69,000 crore already completed.
Of the nine securities on offer, the RBI did not accept any bids for four securities.”Participation in the switch auction depends on interest rate view and what opportunities banks see in terms of replenishing their bond portfolios. The participation has been lower compared to the previous auctions because the majority view is that a cut in interest rate is more or less a done deal,” said Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank.
The centre had budgeted switches worth ₹2.5 lakh crore for FY26, 60% more than the previous year. Of the total budgeted switches, little over ₹69,000 crore has already been done so far. Separately, the RBI has also bought back bonds maturing in the next few fiscal years for ₹69,525 crores since the start of this fiscal.
