New 10-year bond pricing conveys demand comfort

On Friday, the Reserve Bank of India (RBI) carried out the maiden auction of a new government bond maturing in 2034. The coupon – or rate of interest – for the new bond was set at 6.79%. At the time of the auction, the yield on the existing 10-year bond was trading at 6.80%, implying a premium of one basis point for the yield on the new paper. The existing 10-year bond, which bears a coupon of 7.10%, closed at 6.83% on Friday.