Street awaits auction of new 10-year bond

The coupon rate of the bond may come as low as 8.25%

The coupon rate for the auction, later this month, of the new 10-year benchmark government bond is expected to be less than that of the present one, which is 8.83 per cent.

“A new 10-year bond can come by the last week of June, as the outstanding (amount due) on the existing benchmark 10-year paper 8.83 per cent 2023 has already touched Rs 69,000 crore. The previous benchmark 7.16 per cent 2023 issuance was stopped at Rs 77,000 crore,” said

B Prasanna, managing director of ICICI Securities Primary Dealership.

The 10-year bond yield saw a rally last week after the RBI took a dovish stance in the bi-monthly monetary policy review announced on June 3.

“The coupon on the new 10-year benchmark bond will be 25-30 basis points lower than the yield of the current 10-year benchmark one. After the new 10-year hits the market, yields will fall gradually because the overnight repo rate is still at eight per cent,” said Lakshmi Iyer, head (fixed income and products) at Kotak Mahindra Mutual Fund.

The yield on the 10-year bond ended marginally high at 8.56 per cent on Tuesday, compared with Monday's 8.55 per cent.

“The new 10-year bond will be auctioned in the last week of this month. The coupon might be 8.25-8.40 per cent. The rally in the bond market beyond 8.25 per cent might not sustain unless there is a cut in government borrowing,” said Debendra Kumar Dash, associate vice-president (treasury), Development Credit Bank.