RBI sells new 10-year benchmark bond in first auction

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“In fact, the 6.54% threshold has virtually no premium for the new benchmark. Ahead of the budget and policy action with rising inflation [people are] a bit nervous and cautious,” said Ajay Manglunia, MD and Head, Institutional Fixed Income, at JM Financial.

The Reserve Bank of India (RBI) partially delegated the new benchmark 10-year 2032 bond to primary traders at its weekly bond auction due to weak investor demand, which led to a higher coupon being set by 6.54%.

According to a statement, the central bank transferred Rs 5,442.411 crore to primary traders and accepted Rs 7,557.589 crore on the new gilt 2032.

However, other bonds were fully subscribed during the auction. The RBI sold GOI FRB 2034 bonds worth Rs 4000 crore at a limit price of Rs 97.85 or 5.1926% yield, and 6.95%-2061 bonds worth Rs 7000 crore at a limit price of Rs 96.16 or 7.2448% yield, the statement said.

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“In fact, the 6.54% threshold has virtually no premium for the new benchmark. Ahead of the budget and policy action with rising inflation [people are] a bit nervous and cautious,” said Ajay Manglunia, MD and Head, Institutional Fixed Income, at JM Financial.

Primary traders had demanded a higher commission cut-off rate on the new benchmark in anticipation of lower investor demand. The RBI pegged 13.80 paise per `100 on the new 2032 benchmark bonds. Manglunia.

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The partial deconcentration of the RBI led the market to reduce its position, which pushed yields on the current benchmark 6.10%-2031 bond by 2 basis points. It finished at 6.5816%, down from 6.5610% at the end of the previous session. Market hours were extended by 30 minutes due to the late announcement of the results of the weekly bond auctions.

Market participants said investors remained uncertain after inflation rose in December. Global factors such as rising crude oil prices and US Treasury yields also kept demand down. Additionally, a hawkish monetary policy from the US Fed has caused panic among investors, especially in long-term bonds.

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The RBI constantly intervenes in the bond market by buying bonds in a secondary market, allowing the yield to anchor marginally. “RBI’s repeated interventions in bond auctions are a clear sign of its unease with higher bond yields. We could see RBI stepping up its interventions in the market if yields continue to rise,” said Pankaj Pathak, fund manager, fixed income, at Quantum Asset Management.

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