RBI may cap yield at 7.18% in 30-year green bond auction

Mumbai: The Reserve Bank of India (RBI) is unlikely to accept bids above 7.18% - or yield at which the 30-year government bond is currently trading- for Friday's upcoming ₹5,000 crore sovereign green bond auction for the same maturity.

The normal 30-year sovereign government bond closed at 7.19% Tuesday.

The previous green bond auction of the same 30-year paper was cancelled by the RBI, as yields bid on the auction were higher than the RBI's comfort level, traders said.


Domestic investors still view green bonds no differently from regular bonds.

"If pricing doesn't reflect any "greenium," RBI is unlikely to accept it. The minimum expectation will be yields at par with comparable 30-year sovereign bonds, preferably lower," said Venkatakrishnan Srinivasan, managing partner, Rockfort Fincap, a fixed-income institutional advisory firm.

"If the market starts demanding a higher yield, the chances of the green bond auction bids being rejected again become quite high," he said.

Greenium is the lower yield (or higher price) investors are willing to accept for a green bond compared to a conventional one, driven by the demand for sustainable investments. However, the lack of mandates for domestic companies to invest specifically in green funds is proving to be a hindrance.

"Most institutions that bid on green bonds usually keep them in their held-to-maturity book as it lacks liquidity," said a bond trader from a primary dealership.

The bond scheduled to be auctioned on Friday was first auctioned in December 2024, and will be reissued this week, creating liquidity. However, yields on the same bond cannot be viewed on the Clearing Corporation of India, indicating the illiquid nature of the paper.

Along with the 30-year green bond, the RBI will also auction traditional 3-year, 7-year and 30-year government bonds.