The government might have to settle for a high coupon rate, if a new 10-year security was issued in a week or two, according to market participants. With issuances in the current 10-year benchmark bond 8.79 per cent set to rise to Rs 77,000 crore this week, there are hopes that the government may look at issuing a new 10-year security soon. In such a case, the cut-off yield may touch 8.70 per cent levels.
“Looking at the current trend in yields, the new 10-year benchmark bond may come in at 8.65-8.70 per cent,” said Manoj Rane, head, fixed income and treasury - India, BNP Paribas.
According to data with the Reserve Bank of India (RBI), the government has raised Rs 70,000 crore under the current 10-year benchmark bond 8.79 per cent, introduced in November 2011. It will raise another Rs 7,000 crore under the security in the weekly auction on Friday.
“After this week’s auctions, no further issuances are expected in the current benchmark,” said N S Venkatesh, head of treasury at IDBI Bank.
The market has already moved on to the security that matures in 2024 and carries a coupon rate of 9.15 per cent. On Tuesday, it was the most traded security in the secondary market, according to data with Clearing Corporation of India.
Another treasury official with a Mumbai-based public sector lender said if the government was targeting a lower coupon rate of 8.3-8.4 per cent levels, it might wait till yields ease to that extent.
“The new benchmark should be issued latest by the first week of next quarter,” the official said.
On Tuesday, yields on the current benchmark government bond closed at 8.54 per cent, compared to the previous close of 8.69 per cent. The announcement of open market operations (OMOs) of Rs 12,000 crore by RBI after market hours yesterday eased yields by 15 basis points.
“The earlier-than-expected OMO announcement shows RBI’s pro-activeness in keeping liquidity within tolerance levels. This may keep yields under check on a temporary basis, till the time a longer-term solution like a reduction in the cash reserve ratio is effected,” said a senior treasury official of a large public sector bank.
Liquidity deficit has crossed the Rs 1 lakh-crore level, despite huge inflows in the form of bond redemptions. RBI Deputy Governor Subir Gokarn on Tuesday said the bank’s foreign exchange participation had been partially impacting rupee liquidity. Recently, the rupee-dollar exchange rate suffered due to foreign fund outflows against the backdrop of uncertainty over the General Anti-Avoidance Rule (GAAR). However, its implementation has been deferred by a year.
“Clarity over GAAR should help the rupee stabilise and the need for RBI’s intervention may get reduced, helping ease pressure on rupee liquidity,” said the official.
However, with weekly government borrowing of Rs 18,000-16,000 crore lined up till September, OMOs may only help in creating space for fresh issuances, as RBI purchases illiquid securities from the market. The government has pegged gross market borrowing at Rs 5.69 lakh crore for 2012-13. Of this, 65 per cent, or Rs 3.7 lakh crore, will be raised in the first half. This will continue to weigh on system liquidity.
