The Reserve Bank of India (RBI) is likely to announce a new 10-year benchmark bond early next week or on January 8, money market experts told Moneycontrol on Tuesday.
“The outstanding amount of the current benchmark bond has reached Rs 1.53 lakh crore, so we can expect a new 10-year bond next week,” said Abhishek Bisen, Head, Fixed Income, Kotak Mutual Fund.
An announcement on the new bond is expected as the current 10-year benchmark bond—7.18 percent 2033—has reached an outstanding amount of Rs 1.53 lakh crore, as per RBI data.
The current benchmark bond was auctioned by the central bank on August 11.
Traditionally, the central bank issues a new benchmark bond whenever the current bond reaches an outstanding amount to Rs 1.5 lakh crore. A benchmark bond is a bond that provides a standard against which the performance of other bonds can be measured.
Experts said that the outstanding limit on this instrument changes according to the market appetite to absorb these bonds. Prior to this, the limit was Rs 1 lakh crore.
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Money market experts added that the auction of the new benchmark bond will take place on January 12 and bidding will take place under the multiple price method. Under the multiple price method, successful bidders have to pay for the allotted government securities at the rate at which they have bid.
The experts believe that the coupon on the new benchmark bond will be set 2-3 basis points (Bps) lower than the prevailing 10-year bond yield on the day of auction, i.e., on January 12.
One basis point is one hundredth of a percentage point.
Mataprasad Pandey, Vice President, Arete Capital Service, said the bond may fetch a discount of 2-3 bps over the yield on the current benchmark bond at the time of issuance.
The coupon for the new 10-year benchmark bond is expected to be in the range of 7.15-7.17 percent.
“The coupon for the new paper is market determined. It might be in the range of 7.15 percent to 7.25 percent as of today,” said Marzban Irani, Chief Investment Officer, Fixed Income, LIC Mutual Fund.
Currently, the yield on the 10-year benchmark bond—7.18 percent 2033—is trading at 7.2068 percent.
Previous benchmark bond
In August 2023, the RBI issued a new benchmark bond and set coupon rate of 7.18 percent. The 10-year government securities will mature in 2033.
The central bank issued 10-year bonds worth Rs 14,000 crore on August 11.
In the first four auctions between August 11 and September 22, the central bank issued Rs 14,000 crore worth of 10-year bonds, but the amount was later reduced to Rs 13,000 crore.
On December 15 and December 29, the RBI again increased the amount to Rs 16,000 crore for 10-year bonds.
In Budget 2023, Finance Minister Nirmala Sitharaman said the Centre would borrow a record Rs 15.43 lakh crore from the markets in 2023-24 to finance its fiscal deficit of 5.9 percent of the gross domestic product.
On a net basis, the Centre's borrowing for the current fiscal has been pegged at Rs 11.8 lakh crore, up from Rs 11.19 lakh crore in 2022-23.
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Bond yield in January-March quarter
Money market dealers said that India bond yields, especially the 10-year benchmark bond, will trade in the range of 6.90-7.30 percent in the January-March quarter.
Kotak Mutual Fund’s Bisen said expectations of a US Fed rate cut, petrol price cut helping domestic inflation, RBI policy stance change, and JP Morgan index related FPI flows will act as positive factors.
Further, Irani said going ahead. However, this trend may be threatened by potential food inflation fuelled by climate change, geopolitical tensions, and supply chain disruptions due to issues in the Red Sea.
On December 28, Moneycontrol reported that Indian bond yields are likely to see a downward movement in 2024 due to expectations of rate cuts by the US Federal Reserve and inflows from foreign investors after India’s inclusion in JP Morgan’s Emerging Bond Index.
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