 "RBI, bonds, OMO")
The Reserve Bank of India (RBI) is expected to announce a fresh 10-year benchmark bond on August 7, followed by an auction on August 11, according to a report by MoneyControl. The issuance of a new benchmark bond is prompted as the current 10-year benchmark bond, 7.26 per cent 2033, has amassed an outstanding amount of Rs 1.5 trillion, according to RBI data.
Traditionally, whenever a current benchmark bond reaches an outstanding amount of Rs 1.5 trillion, the central bank issues a new one. This practice helps in staggered repayment of maturity proceeds.
The upcoming bond's coupon rate is anticipated to fall between 7.10 per cent and 7.20 per cent with a maturity date set for 2033. Financial experts suggest that the bond may offer a discount of 3-5 basis points (bps) compared to the yield on the existing benchmark bond at the time of issuance. One basis point represents one-hundredth of a percentage point. The current yield on the 10-year benchmark bond 7.26 per cent 2033 is trading at 7.17 per cent.
The auction of the new benchmark bond will use the multiple price method, where successful bidders pay the respective rate they have bid for the allotted government securities.
Umesh Kumar Tulsyan, managing director of Sovereign Global Markets, a New Delhi-based fund house, told MoneyControl that there are various factors players will consider before bidding for the bonds. These include Consumer Price Index expectations, monetary policy rate, the outcome of the policy statement, market sentiment, and global policy rates (US).
Earlier this year, the central bank issued a new 10-year benchmark bond where the coupon was set at 7.26 percent, and raised Rs 12,000 crore. The coupon set was identical to the previous benchmark bond of 7.26 percent 2032. Dealers said that the similar coupon set on the bonds at that time can be attributed to the lower yields in the market after the budget.
At that time, the yield on the 10-year benchmark bond was trading at 7.2887 percent.
The central bank issued Rs 12,000 crore worth of 10-year benchmark bonds 7.26 per cent 2033 in the initial two auctions, but later the amount was increased to Rs 14,000 crore.
The increase in amount was witnessed after the government increased the market borrowing for financial year 2024. So since the start of the current financial year, the amount on the benchmark bond increased to Rs 14,000 crore.
In Budget 2023, Finance Minister Nirmala Sitharaman said the Centre would borrow a record Rs 15.43 trillion from the markets in 2023-24 to finance its fiscal deficit of 5.9 per cent of gross domestic product (GDP).
On a net basis, the Centre's borrowing for the current financial year has been pegged at Rs 11.8 trillion, up from Rs 11.19 trillion in 2022-23.
Money market experts anticipate a coupon rate between 7.10 per cent and 7.20 per cent for the upcoming bond.
