RBI auctions first tranche of IIBs worth Rs 1K crore

Institutional investors on Tuesday fully subscribed the first tranche of inflation-indexed bonds (IIBs) worth Rs 1,000 crore in an auction conducted by the Reserve Bank of India (RBI) here in which the apex bank set a real yield at 1.44 per cent for these IIBs -- a 10-year government securities maturing in 2023.

With a real yield at 1.44 per cent, the coupon rate will be a jot above 8 per cent. Those bonds are linked to the wholesale price index (WPI) based calculations. Successful bidders now have to make payments on June 5. These bonds are aimed at curbing investment in gold by generating inflation adjusted returns on investment.

Earlier, the government had announced plans to issue IIBs worth Rs 12,000-15,000 crore this financial year with a maturity period of 10 years for all such securities. Earlier, RBI had mentioned that the monthly final WPI would be used with a lag of four months. Hence, this auction was connected to January WPI at 6.62 per cent where the effective interest rate would be at 8.06 per cent.

For starters, IIBs have good demand in the market as most primary dealers and institutions have shown interest to buy those. At a later stage, they will sell them at a profit as and when the bond yields fall, prices go up as there is an there is an inverse relation between bond yields and prices.