Street expects new 10-year benchmark govt bond in April

Outstanding on 8.15% 2022 is already at Rs 70,000 cr as on Feb 18, shows RBI data

The Street is expecting the auction of a new 10-year benchmark government bond in April, replacing the current benchmark 8.15 per cent 2022.

The amount outstanding on the 8.15 per cent 2022 was Rs 70,000 crore as on February 18, show Reserve Bank of India (RBI) data.

“The threshold limit is about Rs 75,000 crore. Which means there may probably be just one more auction of the current benchmark government bond and then a new 10-year benchmark will hit the streets,” said Debendra Kumar Dash, assistant vice-president (money market), Development Credit Bank.

The yield on the current 10-year benchmark ended at 7.96 per cent on Friday, compared with the previous close of 7.94 per cent. The yield had ended closer to this level on January 2, at 7.99 per cent. During intra-day trades, the yield touched a high of 7.98 per cent and a low of 7.93 per cent.

“Once the new 10-year benchmark is auctioned in April, the 8.15 per cent 2022 will become an illiquid paper, due to which traders are already in the process of making their portfolio lighter by selling this bond,” said a gilts dealer with a public sector bank.

The current 10-year benchmark was first auctioned on June 8, worth Rs 7,000 crore. There was no devolvement on primary dealers. Competitive bids worth Rs 17,310 crore were received, of which bids worth Rs 6,961 crore were accepted. Non-competitive bids received and accepted were worth Rs 39 crore. RBI will conduct the first government bonds auction in the first week of April (April 1-5), worth Rs 15,000 crore.

By the issuance calendar released earlier this month, a 10-14 year government bond worth Rs 6,000-7,000 crore will be auctioned that day. The next auction will be in the week of April 8-12 and there again a 10-14 year government bond worth Rs 6,000-7,000 crore will be auctioned.

The Street expects the new 10-year benchmark to be auctioned either in the first or second week  of April.

Meanwhile, the yield on the current 10-year benchmark is expected to touch eight per cent next week due to year-end selling pressure, as traders are making their portfolio lighter and shall buy fresh bonds in the auctions starting April. The Street is also concerned on the issue of further rate cuts, after RBI said in Tuesday’s mid-quarter monetary policy review that “the headroom for further monetary easing remains quite limited”.