RBI issues another marquee 10-year bond, making it third this calendar

The (RBI) and the government have once again introduced a new as the old one crossed Rs 1 trillion in outstanding. This is the third benchmark 10-year bond in this calendar, indicating the sheer volume of bonds getting issued by the government.

New bonds are issued after a particular volume is reached as it helps avoid bunched up redemption payment at the time of maturity.

The 10-year bond is the most marquee bond in the market. The repeated issue of such bonds takes away some of its value in the eyes of investors, say experts.

According to bond dealers, a quick benchmark setting can create some confusion in the on rates. When the outstanding comes close to Rs 1.2 trillion, people may not take positions on existing bonds fearing issues will stop. That will push up yields.

“The RBI usually stops issuing a bond once the total outstanding amount reaches approximately Rs 1.2 trillion. Given the enhanced government borrowing this year, we have had a third 10-year benchmark issue this year. The frequent change in the 10-year benchmark has led to a reduction in the ‘premium’ that the benchmarks have been enjoying earlier,” said Badrish Kulhalli, head of fixed income at HDFC LIfe Insurance.

The government on Friday raised Rs 8,000 crore through the new 10-year bonds at a coupon of 5.85 per cent. The new bond was part of a Rs 28,000-crore bond auction on Friday. The most traded 10-year bond yields closed at 5.91 per cent even as gross domestic product (GDP) numbers, released later in the evening, showed the economy contracted 7.5 per cent in the second quarter.

The coupon of the new bond has been slightly higher than earlier. The first 10-year bond was issued on May 11 this year at a coupon of 5.79 per cent. The government raised Rs 1.116 trillion with this bond.

The second one was issued on August 3, and the government raised Rs 1.23 trillion. Given that each benchmark is roughly covering a little more than three months, there would be unlikely another new benchmark this calendar, but the next year’s benchmark could come in this fiscal year.

The government’s Rs 12 trillion borrowing programme has been conducted at 10-year low yields.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor