The Reserve Bank of India (RBI) appeared to cede some ground to the bond traders in their face-off on yields — as it fixed a coupon of 6.10 per cent for the new 10-year bond on Friday after trying to anchor the yields at around 6 per cent.
The cut-off yield for the new paper is above the 5.85-per-cent set for the present benchmark bond.
Amid a huge government borrowing programme, the RBI has tried to cap the benchmark bond at 6 per cent. In several auctions, the RBI had either rejected all the bids or the bonds devolved on primary dealers as the central bank was not comfortable with the high yields sought by the market. More recently, the central bank moved to a uniform price auction for certain bonds to iron out volatility.
However, despite its efforts, yields have risen in recent weeks because of concerns about firm crude oil prices leading to high inflation and a higher supply of government bonds during the pandemic. Retail inflation in May touched a six-month-high of 6.30 per cent and the worrying developments on the crude front have only heightened concerns.
The Centre on Friday sold Rs 14,000 crore of the new 10-year-paper as well as Rs 3,000 crore of the 4.26 per cent GS 2023 (two-year paper) and Rs 9,000 crore for the 6.76 per cent GS 2061 bond (40-year paper). There were no devolvement on primary dealers.
The benchmark 10-year-bond also ended higher at 6.19 per cent — a rise of almost 6 basis points — after opening at around 6.15 per cent. Market circles are of the view that the development indicates some firming up of yields. While the central bank has retained its accommodative stance at its June meeting, it remains to be seen if there is some indication of an unwinding at the next policy meet.
According to Bloomberg data, G-sec yields have risen 45-85 basis points in the 3-7 year segment and around 15 basis points in the 10-year paper since the past six months.
Tata Mutual Fund in a note said the G-sec yields are expected to move up gradually because of the higher borrowing programme required to support state governments and the pandemic relief.
However, the fund house feels the short-term rates will remain stable because of RBI intervention. The fund house believes the RBI will ensure the growth impulses are firmly entrenched before its starts withdrawing its accommodative monetary policy stance.
In a separate announcement, the RBI said states will raise a total of Rs 1,92,091 crore during the July-September quarter. They include Bengal, which intends to mobilise Rs 18,000 crore.
Sovereign bond
The issue price for Sovereign Gold Bond Scheme 2021-22, which will open for subscription for five days from July 12, has been fixed at Rs 4,807 per gram of gold, the RBI said.
