Mumbai: Investors sought higher yield for Reserve Bank of India’s floating rate bond auctioned on Friday, the first after a gap of four years. There were 50 bids worth Rs3,025 crore for the Rs2,000 crore issue, according to the central bank’s website. The cut-off yield was higher-than expected as investors bid for the bond at a steep discount to its face value. They offered Rs91 for each bond of Rs100, which translated into a yield of 4.8557%, higher than a Reuters’ poll of 4.34%.
According to S. Raghavan, head of treasury at IDBI Gilts Ltd, the low coupon of a floating rate bond diminishes its attractiveness. “Banks would prefer this bond as a risk mitigation tool. But when their cost of fund is above 5%, they cannot fully depend on such low yield bonds for long term investment,” said Raghavan.