New 10-year bond at 6.1% signals RBI's tolerance for higher yields

Bond dealers welcome move, say this would help correct distortion in the yield curve

The Reserve Bank of India (RBI) issued a new 10-year bond on Friday and set the coupon at 6.10 per cent, higher than what most of the market was expecting. This indicates the RBI’s willingness to start accommodating the market demand for higher yields in the face of rising inflation after it spent months trying to cap the yield at 6 per cent.

The market was expecting the RBI to keep the cut-off at around 6 per cent, going by precedents, or allow up to 6.05 per cent. The coupon on the last 10-year benchmark bond, issued in December, was 5.85