G-Sec issuance: New 10-yr benchmark bond not this month

Yield ends at seven-week low tracking gains in rupee

The new 10-year benchmark government bond is now expected only in June-July, after the new government announces the year’s Budget.

Typically, the new benchmark paper is floated in the middle of May. The delay is due to the ongoing general elections.

Market participants believe there is scope for more issuances in the current 10-year bond (8.83 per cent 2023), as the outstanding amount is only Rs 48,000 crore. In 2013-14, a 10-year benchmark bond (7.16 per cent 2023) was issued on May 17, replaced by the existing 10-year benchmark one on November 25.

The Street also expects the coupon rate in the new 10-year benchmark to be lower than the current bond, as there could be a rally in the bond market if a stable government comes to power. The coupon on the 10-year benchmark gets aligned with the current one’s yield, which ended at a seven-week low of 8.74 per cent on Monday, compared with the previous close of 8.81 per cent.

The yield had ended at the same level on March 13. The fall was due to gains in the rupee and expectation of a stable government after the elections.

“There will be a few more auctions in the existing 10-year benchmark bond. June-July is the likely timeline for the new one,” said Dhawal Dalal, executive vice-president and head of fixed income at DSP BlackRock Mutual Fund.

One recommendation of the Urjit Patel committee report on strengthening the monetary policy framework was that open market operations not be used for managing yields on government securities. If the coupon on the new 10-year bond comes lower, it will help to bring down yields, as the existing 10-year bond will become illiquid after issue of the new one.