The Reserve Bank of India (RBI) has fixed the interest rate on Government of India Floating Rate Bond (FRB) 2028 at 6.45 per cent per annum for the six months from October 4, 2026 to April 3, 2027. According to reports from Business Standard, this rate applies from October 4 to April 3 and is reset every six months based on 182-day Treasury Bill yields. The announcement comes as Indian government bonds remained stable ahead of the RBI's policy decision this week, with the benchmark 6.94% 2036 bond yield at 7.2127% as of 10:25 a.m. IST, showing little change from Thursday's close. As reported by ETBFSI, traders are staying sidelined ahead of the central bank's policy verdict, with expectations of a rate hike amid global economic tensions.
The coupon on FRB 2028 is linked to the yield on 182-day Treasury Bills (T-Bills). As reported by Business Standard, the RBI stated in its October 1 release that the bond carries a coupon with a base rate equivalent to the average Weighted Average Yield (WAY) of the last three auctions of 182-day T-Bills, along with a fixed spread of 0.64 percentage points. This means the return has two components: the base rate being the average WAY of the last three 182-day T-Bill auctions, and the fixed spread of 0.64 percentage points. The RBI uses this formula to determine the coupon for each six-month interest period, with the current calculation resulting in a coupon of 6.45 per cent for the October 4, 2026 period. The one-year Overnight Indexed Swaps (OIS) remained flat at 6.27%, while the two-year OIS fell 2 basis points to 6.45% and the five-year slipped 1.75 basis points to 6.7%, tracking the softer US Treasury yields.
At the current 6.45 per cent rate, an investment of ₹1 lakh would earn ₹6,450 over a year if the rate were to remain unchanged. However, as reported by Business Standard, this assumption may not hold since the coupon is reset every six months. The interest rate is quoted on an annual basis while interest is paid half-yearly. Additionally, interest income from the bond is taxable according to the investor's applicable tax rules, making the post-tax return lower than the headline 6.45 per cent for investors with tax liability on interest income. The bond's floating-rate structure means investors cannot lock in the current 6.45 per cent rate throughout the bond's entire life.
A rise in 182-day T-Bill yields can push up the coupon when the rate is reset, while a fall in T-Bill yields can decline the coupon on the floating-rate bond. According to ETBFSI, states plans to raise ₹3.61 trillion ($37.48 billion) through bonds in October-December, above market estimates, which is set to surpass previous forecasts. As reported by Sovereign Global Markets' Umesh Tulsyan, the heavy supply of 10-30 year State Development Loans (SDLs) and elevated long-end government bond issuance is likely to keep the term premium under pressure. The RBI may also announce further measures to draw out excess liquidity, including further open market sales, which could add to supply glut in the market.
The 6.45 per cent rate may look attractive compared with some conventional fixed-income options, but investors should consider several factors beyond the headline rate. As reported by Business Standard, the rate is applicable only from October 4, 2026 to April 3, 2027, and cannot be assumed to continue thereafter. The floating-rate structure means the bond's return will change every six months based on 182-day T-Bill yields, unlike conventional fixed-rate securities. The bond should not be confused with Floating Rate Savings Bonds, 2020 (Taxable), as they are different securities with different benchmarks. Market participants are also monitoring the US Federal Reserve's policy path, with Fed minutes due Wednesday potentially shedding further light on the US rate trajectory.
