26 February 2024

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RBI announced 7.18% coupon on upcoming 10-year government bond

The Reserve Bank of India (RBI) held its weekly bond auction on August 11 and set a coupon rate of 7.18 percent for freshly issued 10-year government securities maturing in 2033. This coupon rate shows the set interest payment that bondholders will receive each year until the maturity of the bond.

The RBI’s decision to fix the coupon rate at 7.18 percent was consistent with market participants’ expectations. Money market dealers who carefully monitor government bond auctions predict that the coupon rate for the new benchmark 10-year bond will be in the 7.10% to 7.20% range.

Notably, the newly formed coupon rate of 7.18 percent is eight basis points (0.08 percent) lower than the prior 10-year government bond’s coupon rate. The prior bond had a 7.26 percent coupon rate.

The RBI’s decision to lower the coupon rate on new 10-year government notes is a strategic move to potentially lessen the government’s borrowing expenses. A lower coupon rate suggests that the government will pay bondholders less in interest payments during the life of the bond. This might be interpreted as an effort to manage the government’s budgetary responsibilities and ensure cost-effective borrowing.

These moves are closely watched by market participants and experts because they provide insight into the RBI’s monetary policy stance, budgetary considerations, and broader economic conditions. The coupon rate influences market interest rates and is a crucial factor of the attractiveness of government bonds to investors.

Overall, the RBI’s decision to set a coupon rate of 7.18 percent for new 10-year government securities maturing in 2033, which is in line with market expectations and lower than the previous 10-year bond rate, reflects a combination of fiscal and monetary policy considerations in managing the country’s debt and borrowing costs.

Several major consequences were seen in the central bank’s latest bond auction:

1. Acceptance of Bid Amount: The Reserve Bank of India (RBI) approved the full bid of Rs 14,000 crore for newly issued 10-year government notes due in 2033. This suggests that there was high market demand for these bonds, and investors were eager to subscribe to the entire issue.

2. Cutoff Price and Yield: The cutoff price for the 7.06 percent 2028 bonds was fixed at Rs 99.50, corresponding to a yield of 7.1848 percent. This means that investors who bid at or below this price were able to purchase these bonds at the stipulated yield.

3. Cutoff Price and Yield for 7.30 percent 2053 Bonds: Similarly, the cutoff price for the 7.30 percent 2053 bonds was set at Rs 98.85, equal to a 7.3949 percent yield. This determines the price at which winning bidders can purchase these bonds while earning the stipulated yield.

The cutoff price is the highest price at which bids in a bond auction are accepted, whereas the yield is the effective yearly return that an investor can anticipate earning by keeping the bond until maturity. These figures are important because they set the terms under which investors can participate in the auction and buy bonds.


The RBI’s release is critical for investors, financial institutions, and market analysts since it details the results of the bond auction, including bid acceptance and the calculated cutoff prices and yields for various bond maturities. These specifics provide insight into the market’s appetite for government bonds as well as the economy’s current interest rates.

The successful auction, as well as the exact yield levels created throughout the process, reflect investor sentiment and the central bank’s approach to managing the government’s borrowing program.

central bank’s latest activities and announcements:

1. Underwriting Commission Rates: The central bank also revealed the underwriting commission cut-off rates for primary dealers. A fee given to primary dealers for their participation in underwriting and distributing government securities is known as an underwriting commission. The underwriting commission rate for the 7.06 percent Government Security (GS) maturing in 2028 was established at 26 paise. Similarly, the rate for the new 10-year bond due in 2033 was 36 paise, while the rate for the 7.30 percent GS maturing in 2053 was 67 paise. These are the prices at which primary dealers are compensated for assisting in the distribution of these government bonds.

2. Yield on Current Benchmark Bond: The current benchmark bond yield, the 7.26 percent GS due in 2033, was reported at 7.1863 percent. This benchmark bond serves as a reference point for determining market interest rates. A bond’s yield is the annualized return that an investor can expect if they hold the bond until maturity.

3. Announcement of New 10-Year Government Securities: The Reserve Bank of India (RBI) announced the issue of new 10-year government notes due in 2033 on August 7. This declaration announced the central bank’s plan to raise cash through the issuing of these bonds, which have a 10-year maturity date and offer investors a set interest rate for the duration of the bond.

4. Market Impact: The announcements’ specifics, such as coupon rates, cutoff prices, underwriting commission rates, and benchmark bond yields, provide insights into the central bank’s management of government borrowing and its influence on the bond market. These activities have the potential to influence investor behavior, market sentiment, and overall interest rate patterns.

5. Economic Indicators: Government bond auctions and accompanying announcements are extensively watched economic indicators because they represent the government’s borrowing policy and provide insight into market interest rates. They also influence larger economic conditions and monetary policy decisions.

Overall, the acts of the central bank, such as setting coupon rates, underwriting commission rates, and announcing new bond issuances, are critical components of its monetary policy and fiscal management operations. These activities have ramifications for both financial markets and the broader economy, and they are actively monitored by investors, analysts, and policymakers.

Moneycontrol reported on July 31 that the central bank’s plan to announce a new 10-year benchmark bond on the first Monday of August was a significant event in the financial market. The choice to issue a new benchmark bond is often influenced by a number of factors, including market conditions, investor demand, and the requirement to successfully manage the government’s borrowing program.

The introduction of a new benchmark bond is relevant for several reasons:

1. Interest Rate Benchmark: Benchmark bonds are critical in creating a market reference point for interest rates. The yield on benchmark bonds is used to price other financial products such as government securities, corporate bonds, and loans. As a result, changes in the yield on benchmark bonds can have an impact on interest rates across the economy.

2. Market Liquidity: Benchmark bonds are commonly traded and held by a diverse range of market participants, including banks, financial institutions, and investors. These bonds’ liquidity makes them appealing to investors looking for a safe and liquid investment alternative.

3. Borrowing Costs: By issuing bonds, the central government borrows money from the market. The cost of borrowing, measured by the interest rate paid on these bonds, has the potential to have an impact on the government’s fiscal position and overall debt management strategy.

4. Investor Confidence: Benchmark bond issuance reveals investor confidence in the government’s capacity to satisfy its debt obligations. A successful issue implies that investors have faith in the government’s financial stability and ability to repay.

5. Maturity Profile:  By issuing new benchmark bonds with varied maturities, the government is able to manage its debt portfolio and match its borrowing needs with the right maturity profiles.

The choice to issue a new benchmark bond is frequently influenced by a number of market factors, including current interest rates, investor demand, and the government’s funding needs. The government can take advantage of good market conditions by issuing new benchmark bonds, thereby lowering borrowing costs.

In this situation, the decision to issue a new 10-year benchmark bond was most likely motivated by the present benchmark bond’s outstanding amount, which had reached a substantial level of Rs 1.5 lakh crore. The introduction of a new benchmark bond with a similar tenor allows the government to better manage its debt and potentially attract a larger spectrum of investors.

Overall, the introduction of a new benchmark bond by the central bank is a significant financial market event, with ramifications for interest rates, investor sentiment, and the government’s borrowing and debt management policies.