New 10-year benchmark bond's launch may be delayed

New 10-year benchmark bond's launch may be delayed

The new 10-year benchmark government bond is now expected only in June-July after the announcement of the budget by the new government. Typically, the new benchmark paper of floated during the middle of May. The delay is due to the on going general elections and the formation of new government which will be completed only by end of this month.

Market participants believe there is scope for more issuances in the current 10-year bond (8.83% 2023) as the outstanding is just Rs 48,000 crore. Last fiscal the 10-year benchmark bond (7.16% 2023) was issued on May 17, which was replaced by the existing 10-year benchmark bond on November 25.

The Street also expects that the coupon rate in the new 10-year benchmark bond will be lower than the current bond as there may be a rally in the bond market if a stable government comes into power. The coupon on the 10-year benchmark gets aligned with the current yield of the 10-year bond.

The yield on the 10-year bond ended at a seven-week low of 8.74% on Monday compared with previous close of 8.81%. The yield had ended at the same level on March 13. The fall in bond yields were due to gains in the rupee and expectation of a stable government post election outcome.

"There will still be few more auctions in the existing 10-year benchmark bond. June-July is the likely timeline for the new 10-year benchmark bond. The new 10-year bond may come after the budget is announced by the new government," said Dhawal Dalal, executive vice-president and head of fixed income at DSP BlackRock Mutual Fund.

One of the recommendations of the Urjit Patel committee report on strengthening the monetary policy framework was that Open Market Operations (OMOs) should not be used for managing yields on government securities. If the coupon on the new 10-year bond comes lower, it shall help to bring down yields as the existing 10-year bond will become illiquid after the issue of the new bond.

"The new benchmark may come in June. That is one way of bringing down the yield curve. If the new benchmark comes in June and that time politically we are better off then those positive sentiments will help to bring down the yield. This will help to bring down the coupon rate on the new 10-year benchmark bond. The coupon rate on the new bond may be around 8.50 to 8.75% level," said Anoop Verma, vice president for treasury at Development Credit Bank.

A new 10-year bond hits the Street in about every six month and this is seen as a yield management technique by the Street. "After almost every six month a new 10-year benchmark bond is issued. Once the new 10-year bond is issued, RBI stops issuing the old bond due to which that bond becomes illiquid. The current 10-year bond had a higher coupon because at that time the yield on the old 10-year bond was trading above 9%," said a government bond dealer with a state-run bank.
Thanking you

Regards,

Rajesh Kumar Kathpalia ¤ SMC Global
17,Netaji Subhash Marg,Daryaganj,
New Delhi-110002 Mobile No 9891645052
Email Id: rajesh.ipo@smcindiaonline.com


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