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RBI devolves new 10-year benchmark bond at maiden auction

“Actually, 6.54% cut-off has hardly any premium for the new benchmark. Ahead of the budget and policy action with inflation inching up [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) has partially devolved the new 10-year benchmark bond 2032 on primary dealers at its weekly bond auction due to tepid demand from investors, which led to setting a higher coupon of 6.54%.

According to a release, the central bank devolved Rs 5,442.411 crore on primary dealers and accepted Rs 7,557.589 crore on the new 2032 gilt.

However, other bonds got fully subscribed at the auction. The RBI sold GOI FRB 2034 bonds worth Rs 4,000 crore at a cut-off price of Rs 97.85 or 5.1926% yield, and 6.95%-2061 bonds worth Rs 7,000 crore at a cut-off price of Rs 96.16 or 7.2448% yield, the release said.

“Actually, 6.54% cut-off has hardly any premium for the new benchmark. Ahead of the budget and policy action with inflation inching up [people are] a bit nervous and cautious,” said Ajay Manglunia, MD and head, institutional fixed income, at JM Financial.

Primary dealers had demanded a higher commission cut-off rate on the new benchmark in anticipation of lower demand from investors. The RBI set 13.80 paise per `100 on the new benchmark 2032 bonds. “Looking at the higher underwriting fee in the benchmark, it was looking like a sureshot devolvement play today,” Manglunia said.

The partial devolvement by the RBI has led the market to lighten its position, which pushed yields on the current benchmark 6.10%-2031 bond by 2 basis points. It ended at 6.5816%, as against 6.5610% at the end of the previous trading session. Market timings were extended by 30 minutes due to the late announcement of weekly bond auction results.

Market participants said investors remained uncertain after the higher December inflation print. Global factors such as rising crude oil prices and US Treasury yields have also kept demand on the lower side. Additionally, a hawkish US Fed monetary policy has created panic among investors, especially on long-term bonds.

The RBI is constantly intervening in the bond market by buying bonds from a secondary market, which helps yield to anchor marginally. “RBI’s repeated interventions in the bond auctions is a clear sign of its discomfort with higher bond yields. We may see RBI intensifying its market interventions if yields continue to move higher,” said Pankaj Pathak, fund manager, fixed income, at Quantum Asset Management.

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