New 10-year government bond dethrones old 10-year bond as benchmark

The new ten-year government bond, 7.10% 2034, became the most traded bond and dethroned its predecessor, the 7.18% 2033 bond, as a benchmark after the weekly auction on Friday. A total of 1,362 trades worth Rs 19,694 crore were carried through the new benchmark bond, while the trade volume of the old benchmark stood at Rs 10,542 crore via 969 trades, according to data from the Clearing Corporation of India Limited.

The bond with the highest trade volume gains the benchmark status in the government bond market.

“The liquidity picked up after the auction on Friday,” said a dealer at a state-owned bank. “It was along expected lines,” he added.

Since the maiden issuance of the bond on April 8, the bond has seen a total issuance of Rs 60,000 crore across three auctions.

“Generally, PSU banks pick up these bonds in initial auctions, but this time foreign banks have also stocked up given the bond inclusion,” said a dealer at a state-owned bank. “The benchmark will be heavily traded after the inclusion,” he added.

Market participants said that the yield on the new benchmark bond might fall to 7 per cent next week if the global scenarios remain supportive.

In September 2023, JPMorgan announced the inclusion of India's bonds into the JPMorgan Government Bond Index-Emerging Markets (GBI-EM) starting June. Subsequently, on March 5 of the current year, Bloomberg Index Services revealed that Indian government bonds would be added to its Emerging Market Local Currency Government Index starting January 31, 2025.

Another event being eyed by traders was the Lok Sabha elections. “If the ruling party wins with a good number of seats, then the benchmark yield might fall to 6.75 per cent to 6.80 per cent,” said a dealer at another state-owned bank.