New 10-Year Bond Launch:
- The government is expected to introduce a new 10-year benchmark government bond on May 2, 2025, according to bond dealers.
- This move comes as the existing benchmark bond, 6.79% GS 2034, now has a residual maturity of only 9.5 years, making a new issuance necessary.
Market Dynamics and Borrowing Costs:
- The Pahalgam terror attack and subsequent India-Pakistan tensions may push government borrowing costs up by around 5 basis points.
- On Friday, the 10-year benchmark yield rose to 6.36%, from a recent low of 6.32%, according to Clearing Corporation of India (CCIL) data.
Auction and Issuance Plans
- The Reserve Bank of India (RBI) will announce the securities for auction on Monday.
- Of the Rs 8 lakh crore borrowing plan until September 2025, the government targets Rs 2.1 lakh crore through seven auctions of 10-year bonds.
Corporate Bond Market Impact:
- Corporate bonds are priced at a spread over the 10-year benchmark yield, making the 10-year bond crucial for market participants.
- Corporates often prefer bond market fundraising, especially during a dovish monetary policy environment, due to faster transmission compared to bank loans.
Historical Context:
- The previous 10-year benchmark bond, 7.10% GS 2034, issued in April 2024, had an outstanding stock of Rs 1.80 lakh crore.
- The current benchmark, issued in October 2024, has now reached Rs 1.84 lakh crore outstanding, prompting the need for a fresh issuance.
Market Evolution:
- Earlier, the premium between new and old 10-year bonds was as high as 15 basis points pre-Covid.
- Now, the premium has narrowed to just 1-2 basis points, reflecting a more mature and deeper bond market.
