RBI Fixes New 10-Year G-Sec Rate Below 6%; Receives Good Bidding Response

On Friday, the Reserve Bank of India (RBI) received 4.8 times the notified bids at the auction of the new 10-year government security paper (G-Sec). These are scheduled to mature in 2030 and carry a coupon rate (interest) of 5.79 percent, the lowest since February 2009.

The new rate is reflective of the RBI's aggressive rate-cutting and liquidity injection operations. In post-issue trading, the bond closed at 5.72 percent at a price of Rs 100.55.

At the auction, the G-Secs received 466 bids aggregating Rs 48,040 crore, prompting RBI to exercise the greenshoe option of RS 2,000 crore. This meant that the central bank allocated G-Secs worth Rs 12,000 crore to bondholders against the notified amount of Rs 10,000 crore on receiving strong demand.

The yield on the earlier benchmark, the 6.45% 2029 bond, which was the earlier benchmark, declined about 6 basis points and its price went up by 44 paise over the previous close, resulting in some capital gains for bondholders. Bond prices and yields move in opposite directions.

RBI has cut rates by as much as 2.10 percent in 16 months and undertaken several measures to manage liquidity and yields at the longer end. Experts expect it to slide further by around 0.5 percent.