The new 10-year benchmark 6.54%-2032 bond got fully subscribed at the weekly bond auction on Friday for the first time since its launch on January 14 due to strong demand. The demand rose after low supply was witnessed since the beginning of this month.
The Reserve Bank of India (RBI) accepted 56 competitive bids worth Rs 12,991.945 crore and six non-competitive bids worth Rs 8.055 crore. It set a Rs 98.31 cut-off price or 6.7760% cut-off yield on the benchmark bond. According to a release, benchmark bonds received more than Rs 28,700 crore worth of bids.
Other two bonds also got fully subscribed at the auction. The RBI sold bonds worth Rs 4,000 crore having a maturity of GOI FRB 2028 and Rs 6,000 crore of 6.95%-2061 bonds.
“The auction in the security was held after a long time, and there was a latent demand. Moreover, the cut-off price was much lower than the market levels, leading to full subscription,” said Sandeep Yadav, head of fixed income at DSP Mutual Fund.
The benchmark bond was first auctioned on January 14 when it was partially devolved on primary dealers by the central bank due to weak demand. On January 28, the major chunk of this bond was partially devolved by the RBI.
Full subscription of bonds offered in the auction resulted in a fall in yields. The 10-year benchmark 6.54%-2032 bond yield ended marginally down at 6.7491%, compared with the previous close of 6.7596%.
Dealers, however, expect yields to rise in coming days considering high crude oil prices in the international market, which shot up due to geopolitical tensions. Additionally, the market is still seen worried about higher supply of bonds in the next financial year.
“Things will change once new supply kicks in. With rising crude oil prices, bond yields are likely to move higher in coming days,” Pankaj Pathak, fund manager – fixed income, Quantum Mutual Fund, said.