Synopsis : The Reserve Bank of India will auction a new 10-year government bond on May 2, replacing the current benchmark with only 9.5 years left to maturity. However, geopolitical tensions and market sentiment may push borrowing costs higher.
RBI Set to Introduce New 10-Year Benchmark Bond on May 2
In a key move for debt markets, the Reserve Bank of India (RBI) is expected to introduce a new 10-year benchmark government bond next week. The current 10-year paper—6.79% GS 2034—has a residual maturity of just 9.5 years, prompting the need for a fresh issuance.
The new paper is set to serve as a reference rate for corporate bonds, a critical marker for fixed income pricing across the financial system. The auction will be officially announced on Monday, with the auction likely taking place on May 2.
However, heightened tensions with Pakistan following the recent terror incident in Pahalgam are expected to raise borrowing costs for the government. Bond dealers predict a 5 basis points rise in yields, which could affect auction outcomes.
As of now:
The current 10-year bond yield rose to 6.36% on Friday, up from 6.32% on Wednesday, per data from CCIL.
The outstanding stock of the current 10-year bond stands at Rs 1.84 lakh crore, auctioned first in October 2023.
Experts believe that:
Issuing a new benchmark now helps maintain market liquidity and diversification.
Foreign investors, who often have mandates to buy only "on-the-run" (current) 10-year papers, could drive demand.
The difference in pricing between new and old benchmarks has narrowed to just 1-2 basis points, reflecting market depth post-Covid.
The government plans to borrow Rs 2.1 lakh crore through seven auctions of 10-year bonds as part of its Rs 8-lakh-crore borrowing target until September 2025.
For corporate India, this move is also crucial. Corporate bonds are priced over the 10-year G-sec yield, and with a dovish RBI, the bond market remains a preferred source for fundraising compared to slower-moving bank loans.
Disclaimer : This article is for informational purposes only and should not be considered financial or investment advice. Always consult a certified financial advisor before making investment decisions.
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