Benchmark 10-Year Government Bond to Be Introduced Next Week

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:

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• 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.