Second sovereign green bond auction of FY25 receives a muted response

The second sovereign green bond auction of the current financial year (FY25) received tepid response as the Reserve Bank of India (RBI) was able to sell only Rs 1,697 crore worth of 10-year green paper at a cut-off rate of 6.90 per cent against the notified amount of Rs 6,000 crore.

This is because traders refused to pay greenium, which signifies the premium investors are willing to pay for green bonds because of their sustainability impact.

The first green bond auction of this financial year was cancelled on May 31 for similar reasons.

Diverging from the pattern of issuing green bonds in the latter half, the government planned to issue green bonds worth Rs 12,000 crore in the first half of FY25. The green bonds were planned to be issued in two tranches of Rs 6,000 crore each for a period of 10 years.

 

“Demand is not there at the levels which the government wants, because the government wants some greenium in that and people are not interested in giving any greenium,” said a dealer at a primary dealership.

“That’s why I think the merchant amount has been taken and others have been cancelled. The papers are not liquid and at the levels at which the market is trading now, there is no sentiment to give further premium,” he added.

Funds generated via the sale of green bonds will be allocated to public sector projects aimed at decreasing the carbon footprint of the economy.

The yield on the benchmark 10-year government bond settled at 6.90 per cent on Friday, against 6.92 per cent on Thursday.

“There is resistance around 6.90 per cent (yield on the benchmark 10-year bond),” said another dealer at a primary dealership. “If the upcoming data is favourable, the level can be broken given the current positive sentiment of the market,” he added.