Going long on the bond street

For financial intermediaries globally, interest rate risk seems to be higher than credit risks, of loans turning non-performing assets, at this point. Fortunately, India is a different story

India’s first 50-year bond, issued earlier this month, is a resounding success. Insurance and pension funds rushed to lap up the ultra-long paper. The Rs 10,000 crore 2073 paper’s cut-off yield at the auction was 7.46 per cent, lower than what a Bloomberg survey had forecast — 7.48 per cent. As I write this column, the yield of this paper is veering around 7.42 per cent.

Prices and yield of a bond move in reverse directions. This means, if the yield rises, the prices drop and investors lose out. With the Reserve Bank of India (RBI) allowing commercial banks to hold