RBI cancels 30-year green bond auction amid high bids

Synopsis

The Reserve Bank of India (RBI) cancelled a ₹5,000 crore green bond auction for the 30-year paper, despite receiving bids exceeding ₹10,943 crore. This cancellation, the second this year, is attributed to bids with yields higher than the RBI's comfort level. Geopolitical tensions and a weakening rupee contributed to the increased pressure on bond yields, influencing investor expectations.

Mumbai: The Reserve Bank of India cancelled the 30-year green bond auction despite receiving bids double the auction amount. The last time the central bank cancelled a green bond auction was in May 2024.

The 30-year paper had a notified amount of ₹5,000 crore and received bids worth ₹10,943 crore in the auction scheduled on Friday. The bids for yields were likely higher than the RBIs comfort level, traders said.

"We had a rate cut when the crude oil prices were low. But now the rupee has weakened so people would have wanted higher yields," said a chief investment officer from an insurance company.

Insurance companies are the primary takers of green bonds as they have to invest a minimum of 15% of their assets under management in the 'infrastructure and housing' category, as defined by Irdai. Since green bonds qualify for this, insurance companies have a natural demand.

Geopolitical tensions in the Middle East have added pressure on bond yields. Israeli strike on Iran's nuclear and military facilities increased crude oil prices. "Today was just a bad day for this auction," a bond trader said.

10-year benchmark government security closed at 6.36%, up two basis points from its previous close.

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