RBI rejects bids for 30-year green bonds as investors seek high yields

Investors demanded higher returns for 30-year green bonds, prompting RBI to reject all bids at auction; bond yields rise amid absence of greenium and market caution

The Reserve Bank of India (RBI) on Friday rejected all bids for 30-year sovereign green bonds at the weekly auction, as investors sought higher yields, according to dealers. 

 

Typically, these long-tenure bonds are favoured by insurers and pension funds.

 

During the auction, the RBI sought to raise ₹5,000 crore. It received 90 competitive bids worth ₹10,943.5 crore and three non-competitive bids totalling ₹1.24 crore for the green bond maturing in 2054.

 

The yield on the 30-year government bond increased by 2 basis points to settle at 7.02 per cent on Friday. The benchmark 10-year bond yield remained steady to move up by 1 basis point, settling at 6.36 per cent.

 

 

“The bids were higher because long-term bond yields are moving up. Green bonds are generally expected to come with greenium, which was not the case and the bids were rejected,” said V R C Reddy, head of treasury at Karur Vysya Bank.

 

Greenium refers to the premium investors are willing to pay for green bonds due to their sustainability impact.

 

In FY25, the RBI conducted two auctions of 30-year green bonds, which were fully subscribed. However, the other three auctions of 10-year green bonds were either cancelled or partially devolved to primary dealers. 

 

The first sovereign green bond auction of the last financial year was also cancelled.

 

On May 31, 2024, an auction of ₹6,000 crore was cancelled. On August 2, 2024, a similar auction of ₹6,000 crore was partially cancelled, with ₹1,697 crore accepted. On November 29, 2024, auction worth ₹5,000 crore was partially devolved, with ₹1,502 crore accepted and ₹3,497 crore devolved to primary dealers. Similarly, the January 31, 2025 auction of ₹5,000 crore faced partial devolvement, with ₹3,945 crore devolved and only ₹1,054 crore accepted.

 

However, the two auctions of 30-year green bonds conducted on December 13, 2024 and February 21, 2025 were fully subscribed.

 

“During high volatility, the market expects a discount because as investors we are uncertain how the prices might move. Hence, there is cautiousness during these times,” said Churchil Bhatt, executive vice president at Kotak Life Insurance.

 

The RBI conducted its first-ever sovereign green bond auction on January 25, 2023, raising ₹8,000 crore through a mix of five-year and 10-year bonds — marking India’s entry into sovereign green finance.