New 10-year benchmark gilt expected in April, at about 8%

Govt borrowing calendar to decide timing; meeting likely this month on schedule.

The market is expecting issuance of a new 10-year government security in the month of April. The coupon rate is seen at around eight per cent.

“The coupon rate will depend on the liquidity situation then, but most likely it should be in the vicinity of 8-8.10 per cent,” said Pradeep Madhav, managing director, STCI Primary Dealership.

But industry sources feel the issuance may be only after April, to ease some redemption pressure on the government. “The government spending is usually high in the months from April to July. By July, the government would have spent 80 per cent of its fiscal deficit,” said an industry expert.

The outstanding stock on the current 10-year benchmark bond, 7.80 per cent maturing in 2020, has reached Rs 60,000 crore, making it illiquid. There is no static limit to the total volume that can be issued in a particular security, but normally the issuances are Rs 40,000–50,000 crore.

“Issuances may be higher in some cases. It depends on the market preference. If the existing benchmark is being traded highly, then government issues more of it,” said a treasury official of a public sector bank.

Also, there is enough room to issue a 10-year gilt in 2011-12, since redemptions in 2021-22 would not be high. According to the Reserve Bank of India, total redemptions of G-Secs in 2021-22 would be Rs 1.32 lakh crore.

The decision on the time of issuance of a new 10-year gilt will depend upon the government’s borrowing calendar for financial year 2011-12, which will be discussed in the Cash and Debt Management meeting with the Reserve Bank of India before March 31. For 2011-12, the government has pegged its net borrowing at Rs 3.43 lakh crore. Usually, the government front-loads the borrowing programme, picking up 60-65 per cent of the entire requirement in the first half itself, so that the private sector is not crowded out in the second half.

The market has been awaiting a new benchmark for the past four to five months, when the amount outstanding on 7.80 per cent gilt had crossed Rs 45,000 crore. Since then, the market is referring to the 11-year, 8.13 per cent bond, the closest and relatively liquid one. On Thursday, there were 365 trades on the 8.13 per cent gilt, as compared to 13 trades in the 7.80 per cent one, shows data from the Clearing Corporation of India.

In 2009-10, the market preference had shifted to the 6.35 per cent government bond maturing in January 2020, from the 6.90 per cent benchmark gilt issued in July 2009.