First inflation-indexed bond auction subscribed 4 times

The Rs 1,000-crore auction of 10-year inflation-indexed bonds by the government, the first such auction, was on Tuesday subscribed more than four times. The auction for the new instrument, the 10-year inflation-indexed government stock 2023, was conducted by the Reserve Bank of India (RBI). The cut-off yield for the auction was fixed at 1.44 per cent, RBI said. With Wholesale Price Index-based inflation at 6.62 per cent in January, the effective interest rate for these would be 8.06 per cent.

RBI said it had received 167 competitive bids worth Rs 4,616 crore from wholesale investors, of which 26 (Rs 985.94 crore) were accepted. The response from the retail segment, however, was tepid. All the eight non-competitive bids by retail and mid-segment investors worth Rs 14.06 crore were accepted. RBI had reserved 20 per cent of issue size of Rs 1,000 for the non-competitive bidding (retail, etc) segment.

Bond dealers said as this was the first such auction, retail investors, especially high net worth individuals, were on the sidelines. They would look at the yield trend and then take decide on participating in subsequent auctions for such bonds, they added.

Inflation-indexed bonds were designed to guard investor savings against inflation and dissuade them from buying gold.

Such bonds, to be issued on the last Tuesday of every month, would be part of the government’s borrowing programme for the first half of this financial year. Last month, the government had announced this financial year, it would issue inflation-indexed bonds worth Rs 12,000-15,000 crore, with a maturity period of 10 years.

While the first series of the bond issue is open to classes of investors, the second, beginning October, would be reserved exclusively for retail investors.