RBI sets 7.18% coupon on government bond 

The Reserve Bank of India (RBI), on 11 August, 2024, Friday, set a coupon rate of 7.18 percent on a government bond. These government bonds can be categorised under the broad section of government securities, or termed as G-Sec. 

They can be issued by both Central government body, as well as State Government. 

The bonds with State Government as the issuer, are also renowned as State Development Loans or SDLs

As the government issues bonds to finance the expenditure and obligations, the tenure of these bonds may vary as much as three years to 40 years. 

Decision by the Centre 

The rate was decided after the the weekly bond auction, on the 10 year government securities that happen to be maturing in 2033, which is raising Rs 12,000

One hundredth of a percentage point makes up one basis point. The coupon is seemed to be in line with the market conditions and expectations. 

Money market dealers set the coupon, with a new benchmark bond lying between 7.10 and 7.20 percent. It is lower by 8 basis point on comparison with the bond of of previous 10 years, which was set at 7.26 percent. The reports informed that the central bank has approved the whole amount of worth Rs 14,000 crore on the new bonds, 2033. 

After the auction, the government also set a additonal competitive underwriting commission, cutt off rate of 12 paise for the new bonds of government due in 2033. 

What is a coupon rate and bonds?

It is the rate of interest paid on a bond, from the period of bond issued, to the period of its maturity. The setting of the new benchmark is very similar to that of the benchmark bond of previous 10 years. Government bonds are reference to the pricing for multiple varying economic credit products, including the corporate debt. They are the debt security, issued by the government body, to aid for the government’s expenditure, investment or any kind of spending carried out by government. 

These bonds can make the interest payments periodically, and are called coupon payments thereof. 

These bonds are generally considered risk free, since the issuing body or the government backs them.  

Summary of the government bond in figures 

Usually, when the specific security once reaches the limit of Rs 1.5 lakh crore, the RBI takes the step to announce new bonds that match the security with the previous one.

 The 10 year benchmark bond, functioning presently, currently gived a yield of 7.28 percent, which is high almost by 12 basis points, since the announcement of the budget was made.  

However, the yields started to fell, as an aftermath of the announcement of government about the borrowing figures for the next year, which were concerning as they seemed to be lower than expectations. 

The centre faced a fiscal deficit of 5.9 percent of gross domestic product (GDP), which will be covered up or financed, as the centre would make a borrowing record of Rs 15.43 lakh crores, from the market in the year, 2024 to 2024. On the basis of net calculations, the borrowings by centre is set at Rs 11.8 lakh crores in the next year, which are high, comparatively to the borrowings in 2022 – 2024, which stands at Rs 11.20 lakh crore.