RBI Declines All Bids of Sovereign Green Bonds at Weekly Bond Auction

In a significant move reflecting the shifting dynamics of the bond market, the Reserve Bank of India (RBI) on 13 June rejected all bids for sovereign green bonds during its weekly auction. This decision comes amid heightened investor demand for higher yields, prompted by rising global bond rates and geopolitical instability.

Investor Demand vs Government Strategy

The RBI’s decision marks the 1st such rejection in almost a year, with the previous one occurring on 31 May 2024, according to the central bank’s database. The auction involved the 6.98% Government of India Sovereign Green Bond (GOI SGrB) 2054, for which the RBI received 90 competitive bids worth ₹10,943.5 crore and 3 non-competitive bids totalling ₹1.238 crore, against a notified amount of ₹5,000 crore, which is going to be maturing in 2054.

Sovereign green bonds are government securities intended to finance environmentally sustainable initiatives. However, market experts highlighted a clear divergence in expectations: while the government seeks to issue these bonds at a lower coupon rate, investors responding to rising bond yields are demanding higher returns. This mismatch ultimately led to the cancellation of the auction.

Oil Prices and Bond Market Sentiment

On the same day, yields on government securities rose by 4–5 basis points, as sentiment weakened due to an uptick in Brent crude oil prices. Rising oil prices are particularly significant for India, given its dependence on imported crude.

Typically, a rise in global oil prices has a cascading effect on domestic inflation by increasing input costs across various sectors. However, India's inflation remains comfortably below the medium-term target of 4%.

Read More: RBI Infuses ₹24,000 Crore into Banking System via Bond Buyback!

Conclusion

The RBI’s rare decision to reject all green bond bids underscores growing tensions between market expectations and government strategy amid uncertain global conditions. While India’s retail inflation currently remains below the central bank’s 4% medium-term target, easing to a 75-month low of 2.82% in May, external shocks like geopolitical unrest and oil price volatility continue to pose risks to the country’s economic stability.

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