RBI sets 7.18% coupon on new 10-year government bond

Government bonds

The Reserve Bank of India (RBI) on August 11 set a coupon rate of 7.18 percent for the new 10-year government securities maturing in 2033 after the weekly bond auction.

The coupon is in line with the market expectations. Money market dealers pegged the coupon on the new benchmark bond between 7.10 percent and 7.20 percent. It is eight basis points lower than the one for the previous 10-year bond, which was set at 7.26 percent.

One basis point is one-hundredth of a percentage point.

The central bank accepted a full amount worth of Rs 14,000 crore on the new 2033 bonds, the release said.

While on the 7.06 percent 2028 bonds, the cutoff price or yield was Rs 99.50 or 7.1848 percent, on 7.30 percent 2053 bonds, the cut-off price or yield was Rs 98.85 or 7.3949 percent, the central bank said in a release.

The central bank also set the cut-off rates for underwriting commission payable to primary dealers at 26 paise on 7.06 percent GS 2028, 36 paise on new 2033 bond, and 67 paise on 7.30 percent GS 2053.

The yield on the current benchmark bond 7.26 percent 2033 was at 7.1863 percent.

On August 7, the central bank announced the new 10-year government securities maturing in 2033.

Moneycontrol reported on July 31 that the central bank was likely to announce the new 10-year benchmark bond on the first Monday of August.

The announcement of the new benchmark bond was expected as the current 10-year benchmark bond 7.26 percent 2033 has reached an outstanding amount of Rs 1.5 lakh crore, as per the central bank's data.

The government issue bonds to borrow money from the market to fund its expenditure. The tenure of these bonds vary from three years to 40 years.