India’s first sale of inflation-linked bonds in over a decade was fully sold on Tuesday after attracting good demand, marking a promising start to the government’s attempt to wean millions of Indians off gold as a hedge against rising prices.
The Reserve Bank of India sold Rs 1,000 crore worth of 10-year bonds at a real yield of 1.44% over the wholesale price index. The RBI sold the debt on behalf of the government. The RBI received 167 bids worth Rs 4,616 crore, with a strong bid-to-cover ratio of over 4.5, which is a gauge of demand.
Dealers said the bulk of the demand likely came from traders and insurance firms, with foreign investors and mutual funds likely having declined to bid.
“The auction went well, looking at the cutoff levels. The size of the issue was small and a few investors may have picked it up. It’s, however, too early to comment how this product pans out,” said Harish Agarwal, a dealer with First Rand Bank in Mumbai.
He said that the bond was trading at a 0.25-0.30 rupee premium in the secondary market after being sold. Tuesday’s sale marks the first tranche of up to Rs 15000 crore of inflation-linked paper, which will be offered at monthly intervals during the current fiscal year.