RBI Likely To Announce New Benchmark 10-Year Bond Next Week, Say Experts

The Reserve Bank of India is expected to launch a new benchmark 10-year bond on Jan. 8, according to experts who track the debt market.

The quantum set for the current 10-year bond was about Rs 1.53 lakh crore, and this outstanding amount has already been reached, Ajay Manglunia, managing director of JM Financial Ltd., told NDTV Profit.

The usual outstanding limit for the 10-year bond is about Rs 1.4 lakh crore to Rs 1.5 lakh crore, "and once they cross this limit, RBI will start looking for a new benchmark, as they do not want too much of maturities put together," Manglunia said.

There are three more auctions for the 10-year bond this year, and there is no way the central bank can continue auctioning the current one, as it might take the outstanding to more than Rs 2 lakh crore, he said.

The rationale behind the new bond is that there is a limit to borrowing through a single International Securities Identification Number and this helps the government make payments in a staggered system, said Mataprasad Pandey, vice president, Arete Capital Service Pvt.

The yield for the new benchmark bond is expected to be 2-3 basis points lower than the benchmark yield in the secondary market on the day of auction, according to Pandey.

Whenever a new 10-year bond is launched, it gets traction by default, as ultimately it is the benchmark, he said.

The yield for the new bond is expected to range from 7.15% to 7.20% and it depends on the market over the next week, Manglunia said.

The current 10-year bond was launched in August 2023 with a coupon rate of 7.18% and is set to mature in 2033.

The yield on the 10-year bond in 2023 remained volatile due to inflationary pressure and geopolitical tensions, witnessing a steady fall from 7.4% in March to 6.9% in May. The yield hit a peak of 7.38% in October before closing at 7.17% for the year.

After a year of volatility, the Indian bond market is expected to see increased activity going into 2024, driven by JPMorgan bond inclusion and rate cuts by central banks.

The U.S. Federal Reserve has signalled rate cuts this year, while India's Monetary Policy Committee is also expected to ease rates as inflation cools. That, according to bond market experts, could bring down rates by 25–50 basis points starting in June 2024.