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Informist, Friday, Apr. 4, 2025

 

--Fin min source:Sale of 2 gilts/weekly auction to simplify govt borrow plan

--Fin min source: See no risk in auctioning only 2 gilts per auction

--Fin min source: Selling 2 gilts/wk in Apr-Sept for better price discovery

--Fin min source: Insurance cos asked for long-tenor green gilts in Apr-Sept

--CONTEXT:Govt to sell 30-yr green bonds twice to raise INR 100 bln Apr-Sept

By Krity Ambey and Sagar Sen

 

NEW DELHI – The government has tried to streamline and simplify its borrowing calendar by scheduling the sale of only two gilts at weekly auctions in the first half of 2025-26 (Apr-Mar), a senior finance ministry official said. According to the official, who did not wish to be named, auctioning more than two papers in a particular week can sometimes render decision-making slightly complex for fund managers.

 

The government last week announced it would borrow INR 8 trillion through dated securities in Apr-Sept, with only two gilts set to be sold at each auction in all but two weeks, a departure from the usual practice of three or more securities being auctioned every week. As per the official, streamlining bond auctions according to the pattern followed by developed regions such as the US and Europe has been on the finance ministry's agenda since last year when it made a conscious effort to sell benchmark securities only once a month instead of every fortnight.

 

The official added that the sale of only two gilts every week would also help in better price discovery. And while there could be apprehensions about how the auctions will be managed in case there isn't enough demand for one of the bonds on offer, the official said the finance ministry does not see this as a risk. "Let's say the bids (yield demanded) are too high at an auction for a certain paper and the RBI rejects them. Then we'll pick up in the next week. That is not a problem."

 

The two weeks in Apr-Sept which will see three bonds being sold are in mid-April and mid-June, with the third paper on auction being the Centre's green bonds. The government plans to raise only INR 100 billion through 30-year green bonds in Apr-Sept, slightly lower than the INR 120 billion it had looked to borrow in the correspoding period of the previous fiscal year. However, the government's experience was poor last year, with the bonds commanding no 'greenium' as it managed to raise only INR 16.97 billion in Apr-Sept 2024 because of unfavourable pricing offered by investors.

 

"We had to accommodate the green bonds somewhere, but the quantum has been cut. So, that should be enough of a sign for the market," the official said. "Proceeds from green bonds are used for green projects, which are long term, so decided to go for 30-year paper. Besides, some insurance companies were also interested in green bonds and asked for them in longer tenure."

 

While the Indian government managed to raise INR 200 billion through green bonds in the second half of FY25, it was only due to these being devolved on primary dealers at two out of four auctions. Pricing of these instruments has been a constant problem. At their last auction in February, the government accepted a cut-off yield of 7.11%--2 basis points higher than the prevailing yield on the benchmark 30-year bond in the secondary market. So far, the maximum greenium the government has managed to get on these bonds has been 6 bps at their maiden issuance, as against expectations of at least 10 bps.  End

 

Edited by Avishek Dutta

 

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