Strong demand for 6.68% GS 2040 and 7.43% GS 2076 in RBI's government bond auction
In the latest Indian government securities auction, the two long-term bonds received far more competitive bids than the notified amount. For 6.68% GS 2040, bids worth ₹62,938 crore were received against an offer of ₹17,000 crore, and for 7.43% GS 2076, bids worth ₹29,635 crore were received against an offer of ₹11,000 crore.
Highlights
- For 6.68% GS 2040, 279 competitive bids were received with a cut-off price of 96.71, yield of 7.0530%, and allocation of ₹16,990.345 crore.
- For 7.43% GS 2076, 173 competitive bids were received with a cut-off price of 98.64, yield of 7.5346%, and allocation of ₹10,983.189 crore.
- The notified amount for both securities was fully accepted from primary dealers with no devolvement, indicating strong market demand.
This article was translated from the original. Read the original version by our correspondent here.
Auction Results and Pricing
According to the Reserve Bank of India press release, the cut-off price for 6.68% GS 2040 was set at 96.71 with a yield of 7.0530%, while the weighted average price was 96.72 and the weighted average yield was 7.0518%. This security received 279 competitive bids, of which 4 were accepted, and an allocation of ₹16,990.345 crore was made.For 7.43% GS 2076, the cut-off price was set at 98.64 with a yield of 7.5346%, while the weighted average price was 98.69 and the weighted average yield was 7.5307%. This bond received 173 competitive bids, 21 of which were accepted, and an allocation of ₹10,983.189 crore was made.
Partial allocation was recorded at 99.7560% for 6.68% GS 2040 and 12.4095% for 7.43% GS 2076. In the non-competitive category, all bids for the 2040 bond worth ₹9,655 crore and for the 2076 bond worth ₹16,811 crore were accepted.
Market Signals and Impact on Primary Dealers
The high bid amounts indicate sustained investor interest in long-term government securities, especially in maturities like 2040 and 2076 where yield levels remain significant for institutional investors. The much higher demand than the notified amount for the 2040 security reflects relatively aggressive bidding, while the 2076 bond also saw demand far exceeding the offer.On the underwriting front, the notified amounts for both securities, ₹17,000 crore and ₹11,000 crore respectively, were fully accepted from primary dealers. However, there was no devolvement on primary dealers in either security, indicating that market demand absorbed the auction without additional burden.
Our earlier report discussed the role of high capital cost and an almost 7% risk-free rate behind the high valuations in the Indian stock market, and how a 5-6% risk premium over the 10-year government bond yield increases the expected return for equities, potentially resulting in weaker returns for domestic investors while foreign capital may benefit from high valuations.
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