Coupon on new benchmark bond set at 5.77%

Bond market experts indicated that yields are likely to remain stable till the announcement of the monetary policy.

The coupon on the new benchmark bond maturing in 2030 has been set at 5.77% during Friday’s auction of government securities, with the paper receiving a premium of about 5-6 basis points over the yield on the current benchmark bond, largely in line with market expectations, according to dealers.

The yield on the new paper closed flat at 5.77% after Friday’s session. RBI data show that the new bond received competitive bids of Rs 62,486 crore, against a notified amount of Rs 18,000 crore.

Vijay Sharma, senior executive vice-president at PNB Gilts, said the premium on the new benchmark bonds has come down to 5-7 bps as anticipated. “At the time of bidding, the yield on the current benchmark bond was about 5.82% while the coupon on the new paper came in at 5.77%. Even after the auction, there wasn’t any significant downward movement in the yield on the new paper. I believe yields are likely to remain stable until the announcement of the monetary policy,” Sharma said.

Dealers had earlier pointed out that a year usually sees one or two new benchmark bonds being issued, and as a result, bond market participants usually tend to pay a premium of about 15-20 basis points over the yield on the existing benchmark bond to get hold of the new paper, as it eventually becomes the most traded bond in the market. The market had anticipated a fall in the premium as a new paper was hitting the market within a short period.

Bond market experts indicated that yields are likely to remain stable till the announcement of the monetary policy. MS Gopikrishnan, an independent market expert, said he doesn’t expect a rate cut in the upcoming monetary policy considering that inflation has been on the higher side and liquidity continues to remain high. “There is no point in cutting rates when past cuts have still not had the desired impact on activating credit. It is better to preserve some ammunition for future,” Gopikrishnan said.