A new 10-year benchmark government bond is expected to be introduced next week, on May 2, as the existing benchmark paper now has a residual maturity of only 9.5 years, bond dealers said.
However, with the new auction coming amid heightened tensions between India and Pakistan following the Pahalgam terror attack, the government's borrowing cost could go up by about 5 basis points, they said.
One basis point is one-hundredth of a percentage point.
The 10-year paper is the most actively traded security and serves as a reference rate for corporate bonds.
On Friday, the 10-year benchmark yield closed at 6.36%, up from a low of 6.32% on Wednesday, data from Clearing Corporation of India (CCIL) showed.
"Yes, the new 10-year should be auctioned this time," said Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank. "The existing benchmark paper is about nine years in tenure now and when it's the 10-year benchmark, it has to be 10 years in maturity."
As of now, the 6.79% bond maturing in 2034 is the benchmark 10-year paper and has an outstanding stock of Rs 1.84 lakh crore. This was first auctioned in October last year.
"We have many offshore investors now and a lot of them have a mandate to invest in the 10-year on-the-run security," Pawar said. "However, going purely by the outstanding amount, which is under Rs 2 lakh crore, another auction of the old 10-year paper may still be possible."
The Reserve Bank of India (RBI) is set to announce securities to be auctioned next week on Monday.
Most top-rated companies prefer raising funds from the bond market, wherein the transmission of the policy rate is immediate, over taking loans-particularly during a dovish central bank stance. This is partly because banks are typically slow to lower lending rates when interest rates fall as the drop depends on the reduction in their own cost of funds.
The pricing of all corporate bonds is done at a spread over the benchmark 10-year paper.
Of the total Rs 8-lakh-crore borrowing planned until September 2025, the government plans to borrow Rs 2.1 lakh crore through seven auctions of 10-year paper.
The government has gradually increased the outstanding stock of 10-year papers, RBI data show. The old benchmark 10-year 7.10% GS 2034 auctioned in April last year had an outstanding stock of Rs 1.80 lakh crore.
"Now that the outstanding is Rs 1.84 lakh crore in the current 10-year, we can expect the new paper to come," said Sandeep Yadav, head of fixed income at DSP Mutual Fund. "The government ensures that one security does not have too much of an outstanding so that there is no significant outflow on one particular day when the paper matures," he said.
Another trader from a primary dealer said, "Premiums for the new over the old 10-year used to be as high as 15 basis points before Covid times when there used to be a lot of underlying derivative transactions. Now, the difference between the new and old 10-year has narrowed 1 to 2 basis points, since the market has deepened."
However, with the new auction coming amid heightened tensions between India and Pakistan following the Pahalgam terror attack, the government's borrowing cost could go up by about 5 basis points, they said.
One basis point is one-hundredth of a percentage point.
The 10-year paper is the most actively traded security and serves as a reference rate for corporate bonds.
On Friday, the 10-year benchmark yield closed at 6.36%, up from a low of 6.32% on Wednesday, data from Clearing Corporation of India (CCIL) showed.
"Yes, the new 10-year should be auctioned this time," said Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank. "The existing benchmark paper is about nine years in tenure now and when it's the 10-year benchmark, it has to be 10 years in maturity."
As of now, the 6.79% bond maturing in 2034 is the benchmark 10-year paper and has an outstanding stock of Rs 1.84 lakh crore. This was first auctioned in October last year.
"We have many offshore investors now and a lot of them have a mandate to invest in the 10-year on-the-run security," Pawar said. "However, going purely by the outstanding amount, which is under Rs 2 lakh crore, another auction of the old 10-year paper may still be possible."
The Reserve Bank of India (RBI) is set to announce securities to be auctioned next week on Monday.
Most top-rated companies prefer raising funds from the bond market, wherein the transmission of the policy rate is immediate, over taking loans-particularly during a dovish central bank stance. This is partly because banks are typically slow to lower lending rates when interest rates fall as the drop depends on the reduction in their own cost of funds.
The pricing of all corporate bonds is done at a spread over the benchmark 10-year paper.
Of the total Rs 8-lakh-crore borrowing planned until September 2025, the government plans to borrow Rs 2.1 lakh crore through seven auctions of 10-year paper.
The government has gradually increased the outstanding stock of 10-year papers, RBI data show. The old benchmark 10-year 7.10% GS 2034 auctioned in April last year had an outstanding stock of Rs 1.80 lakh crore.
"Now that the outstanding is Rs 1.84 lakh crore in the current 10-year, we can expect the new paper to come," said Sandeep Yadav, head of fixed income at DSP Mutual Fund. "The government ensures that one security does not have too much of an outstanding so that there is no significant outflow on one particular day when the paper matures," he said.
Another trader from a primary dealer said, "Premiums for the new over the old 10-year used to be as high as 15 basis points before Covid times when there used to be a lot of underlying derivative transactions. Now, the difference between the new and old 10-year has narrowed 1 to 2 basis points, since the market has deepened."
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