RBI fixes new 10-year G-sec rate at 5.79%

The Reserve Bank of India (RBI) on Friday announced the cut-off yield on the new 10-year government security paper at 5.79%, the lowest since February 2009. This is reflective of the central bank’s aggressive rate cutting and liquidity injection operations. In post-issue trading, the bond closed at 5.72% at a price of ₹100.55.

While the G-sec auction was notified for ₹10,000 crore, the RBI has exercised the greenshoe option of ₹2,000 crore. This is an indication of strong demand for government securities despite the extra supply, according to bond dealers. The new cut-off yield for the 6.45% 2029 bond, which was the earlier benchmark, has forced a readjustment in prices of all existing government bonds, resulting in some capital gains for bond holders. Bond prices and yields move in opposite directions.

“It is the RBI’s rate cut action that has brought the yield down. There is still enough room for the yields to come down. We are expecting yields to come down by 50 bps,” said Mahendra Jajoo, chief investment officer, fixed income, Mirae Asset Investment Managers (India).

RBI has cut rates by as much as 210 basis points in 16 months. It has also undertaken several measures to manage liquidity and yields at the longer end.

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