There has been a buzz in the money markets for the last few weeks that the Reserve Bank of India (RBI) will soon announce a new benchmark bond. However, the central bank hasn’t launched it yet despite the current benchmark bond surpassing an outstanding limit of Rs 1.5 lakh crore.
Most experts said that the RBI may announce the new bond after the Union Budget 2024, which will be presented on February 1. Here’s an explainer of the reason for the central bank not announcing the benchmark bond yet and when it may be announced.
To begin with, what is a benchmark bond?
A benchmark bond is a debt instrument issued by the central bank with a residual maturity of 10 years. This bond offers a benchmark against which the performance of other bonds is measured. As this bond is a benchmark security, it has the highest liquidity and traders usually trade more in this security.
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When is the benchmark bond issued typically?
Traditionally, the central bank issues a new benchmark bond whenever the current bond reaches an outstanding amount of Rs 1.5 lakh crore.
The current benchmark bond was auctioned by the central bank on August 11, 2023. The yield on the current benchmark 10-year bond was trading at 7.1428 percent.
When was the new benchmark bond announcement expected?
On January 2, Moneycontrol reported that the RBI may announce a new 10-year benchmark bond on January 8. But no announcement has been made by the RBI.
An announcement on the new bond was expected as the current 10-year benchmark bond—7.18 percent 2033—reached an outstanding amount of Rs 1.53 lakh crore in the last auction in December, as per RBI data. The outstanding amount has reached Rs 1.85 lakh crore as of January 29, as per RBI data.
Why has the RBI not announced a benchmark bond yet?
Money market experts said the RBI is not announcing the benchmark bond because the borrowing figures in the Budget will give a better direction to the coupon rate if it is announced after the Budget.
Moneycontrol on January 8 reported that in the Union Budget 2024 the finance minister may announce around Rs 15 lakh crore to Rs 16 lakh crore of gross market borrowing, almost the same as what was announced last year and a smaller portion of this will include green bonds.
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When will the RBI announce the new benchmark bond?
Experts said that the benchmark bond may be announced on February 5 or in the next financial year’s borrowing calendar.
“It (Benchmark bond) may be expected post the Interim Budget, either February or next fiscal,” said Mataprasad Pandey, Vice President, Arete Capital Service.
Would the outstanding limit be also increased?
Arun Bansal, Executive Director – Head of Treasury at IDBI Bank, said as GDP and Budget numbers are going to increase over a period, higher outstanding under one issue can be affordable, so a new paper has not been announced yet. “But we are expecting it in the next 10-year bond auction,” he added.
Further, Pandey said the possibility of increasing the soft limit of Rs 1.5 lakh crore is very much there as the government’s gross borrowing has gone up significantly since the Covid period, so it is logical to revise borrowing limit security-wise,” he said.
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