The Reserve Bank of India on Friday auctioned a new 10-year benchmark government bond worth Rs 7,000 crore at a cut-off yield of 7.16 per cent.

The bond, which will matures in 2023 and carries a coupon rate of 7.16 per cent, will be the new benchmark paper in place of the existing 8.15 per cent bond, which matures in 2022. After the issue, the yield of the 7.16 per cent 2023 government bond ended at 7.16 per cent in the market.

According to N. S. Venkatesh, Head of Treasury, IDBI Bank, the cut-off yield shows that the 10-year paper was very well bid. “The market has already discounted at least 25 basis point (bps) cut in repo rate in the RBI’s mid quarter monetary policy which is due in June.”

“Till the policy is announced, the yield (on the new 10-year paper) may fall further to 7.05 per cent levels,” he said.

The yield on the current 10-year benchmark bond 8.15 per cent, maturing in 2022, ended at 7.40 per cent compared with Thursday’s close of 7.39 per cent. During intra-day trades the yield had dropped to 7.32 per cent.

However, the yields edged up after global rating agency Standard & Poor’s gave a negative outlook on India's long-term rating. The benchmark bond yields have fallen over 50 bps beginning this April. The yields fell on account of easing of the latest WPI inflation for April to 4.89 per cent, which compares favourably with the RBI’s comfort level of 5 per cent. (The Hindu)