The coupon on the new ten-year benchmark bonds was set at 7.17% in Friday’s weekly auction, led by heavy demand from market participants. The security will mature in 2028.
The coupon on the new ten-year benchmark bonds was set at 7.17% in Friday’s weekly auction, led by heavy demand from market participants. The security will mature in 2028. Against the available amount of Rs 9,000 crore, market participants put in bids worth Rs 47,640 crore, indicating a demand in excess of five times the offer. This heavy demand spilled over into the secondary market, after the paper started trading, pushing the yield down to 7.09% by the end of the session. The security recorded 229 trades on Friday amounting to Rs 1,955 crore. Dealers pointed out that the trade timing on Friday was extended by half an hour as the auction results were late. Vijay Sharma, senior executive vice-president at PNB Gilts said that the post-auction performance of the paper was very encouraging. “The sentiment in the bond market was positive since morning and this was further fuelled by expectations of a higher dividend from RBI to the government. The fact that Reserve Bank of India (RBI) rejected all the bids in the longer segment of the auction also further reaffirmed the stance that yields have gone up too far in too short a time. There have been repeated steps of such kind in the recent past now,” Sharma indicated.
The central bank did not accept any bids for two of the four securities that were put up for auction on Friday. These were longer tenor papers (with residual maturities of 16 and 37 years) amounting to Rs 4,000 crore.
Meanwhile, bonds rallied on Friday after reports indicated that the RBI might pay additional dividends to the government this fiscal year, which may reduce the government’s borrowing. The current benchmark paper— 6.79% yielding notes maturing in 2027— closed four basis points down at 7.29% on Friday. This respite comes after the bond market witnessed a sell-off last week led by the news that the government will borrow an additional Rs 50,000 crore through dated securities. The report led to a surge in the benchmark yield, which closed at an 18-month high of 7.396%.