New 10-year bond to end uncertainty: FinMin

The government announced the auction of new 10-year sovereign bond on Monday to end all speculation with regard to the issuance of a fresh bond, a senior finance ministry official said on Tuesday. The price of the existing 10-year security—6.35 per cent 2020—was being hammered for some time now, as the market anticipated issuance of a new 10-year bond. The large selling in the 10-year bond has also distorted the yield curve.

The current 10-year gilt has fallen by Rs 1.66 over the last one month, which in turn, has driven up the yield on the paper to 8.13 per cent from 7.89 per cent.

On Monday, the government said the Reserve Bank of India would auction Rs 5,000 crore of a new 10-year gilt as part of Rs 12,000-crore borrowing on April 30.

“I think with the issuance of the new 10-year bond, we will comprehensively put all speculation and volatility to end as far as the new bond goes,” the official said.

“The volatility associated with inflation or huge supply of gilts is not in our hands. But, it is in our hand to curb volatility and speculation linked to issuance of the new 10-year gilt. So we decided to end it,” the official said.

The official said yield on the existing 10-year paper was consistently above 8 per cent for some time now, as speculation was rife that a new 10-year gilt was likely any time now.

“We see good response to the auction of new 10-year bond. Anything (yield) below 8 per cent will be good for us,” the official said.

The official said there was sufficient room for the security and the central bank was likely to repeatedly conduct auctions in the bond to create liquidity.

The government is scheduled to borrow a gross amount of Rs 4.57 lakh crore in the current year. Of this, it will borrow Rs 2.87 lakh crore in April-September.