Coupon on new benchmark bonds settles at 5.79%

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Published: May 9, 2020 12:15 AM

Market participants have been anticipating the coupon on the new 10-year bonds to settle at levels close to 5.85%, around 15-18 basis points lower than the yield on the current benchmark bonds.

Bonds maturing in 2022 received the highest interest with bids crossing six times the notified amount of Rs 3,000 crore during Friday’s auction. Bonds maturing in 2022 received the highest interest with bids crossing six times the notified amount of Rs 3,000 crore during Friday’s auction.

With the new benchmark bonds maturing in 2030 witnessing aggressive bidding during Friday’s auction of central government securities, the coupon on the paper settled at 5.79% — a level that was better than market expectations, dealers say.

Market participants have been anticipating the coupon on the new 10-year bonds to settle at levels close to 5.85%, around 15-18 basis points lower than the yield on the current benchmark bonds.

Dealers say the aggressive interest in acquiring the new paper led to a fall in its yield in the secondary market as well.

Siddharth Shah, head of treasury at STCI Primary Dealer confirmed that indeed the cut-off on the new benchmark bonds came in much better than the market expectations. “Anticipation was rife in the market that the new benchmark coupon should settle at levels close to 5.85%; however, the bids were aggressive which eventually led to the cut-off go as low as 5.79%. Those who could not get the paper during the primary auction seem to have bought aggressively in the secondary market that has led the yield on the paper close at 5.72% during Friday’s session,’ Shah said.

According to data put out by the Reserve Bank of India (RBI), the new 10-year paper received bids worth Rs 48,040 crore against the notified amount of Rs 10,000 crore. The government finally accepted Rs 2,000 crore more by exercising the greenshoe option, taking the total amount accepted to Rs 12,000 crore for the new benchmark bonds.

Meanwhile, the yield on the current benchmark bonds — 6.45% yielding notes maturing in 2029 — closed 6 basis points lower at 5.97% on Friday to hit the lowest level since February 2009.

“The RBI has bought government securities, most likely treasury bills, to the tune of over Rs 61,000 crore from the secondary market via open market operation (OMO) outright purchases in the month of April itself. Till the time there is anticipation that such kind of support will be shown by the central bank, I think the yields will remain soft,” said an expert.

Bonds maturing in 2022 received the highest interest with bids crossing six times the notified amount of Rs 3,000 crore during Friday’s auction. Market participants said excessive liquidity in the system and an expectation that there could be further cut in the reverse repo rate has made short-term papers attractive. This is evident from the fact that banks have been parking in excess of Rs 8 lakh crore via reverse repo auctions with the central bank showing waning credit growth, and risk-aversion in current times.

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