The Reserve Bank of India (RBI) on Friday set the coupon rate for a new benchmark 10-year bond at 7.59 per cent, 13 basis points (bps) lower than the previous benchmark, and raised Rs 8,000 crore through the bond.
While the cut-off yield in the auction was in line with expectations, the policy rate between now and May last year, when the last 10-year benchmark was issued, has come down by 75 bps. This indicates that the bond rates really did not move much in the longer end despite rate cuts.
"The spread between existing and debutant is towards lower side in recent times. Issuance of new 10-year (bond) is appropriate amid high supply of state development loans and possible issue of discom bonds. But, the state development loan may take time to get reprised in accordance to the new benchmark," said Soumyajit Niyogi, interest rate strategist at SBI DFHI Ltd, a primary dealer.
Against the old benchmark, Rs 86,000 crore has been raised so far. For all practical purposes, this bond will continue to be traded the most in the absence of critical liquidity in the new benchmark. At Friday's auction, RBI raised Rs 6,000 crore through three other bonds, including Rs 2,000 crore through a 40-year bond.
The 40-year bond, the longest duration bond, was issued in October last year and only Rs 5,000 crore has been raised so far. The other bonds against which Rs 2,000 crore each will be raised will mature in seven years and eight years, respectively.
