New India 10-year bond to see strong demand; FY24 budget in focus
India’s new 10-year bond being auctioned later this week is likely to witness strong demand despite the government expected to announce an elevated borrowing schedule for the next fiscal year in its annual budget on Wednesday, traders said.
The government will sell bonds worth 280 billion rupees ($3.43 billion) on Friday, including 120 billion rupees worth of a new 10-year paper.
“Market has factored in very high borrowing, but we may see some positive surprise on that front. And after the budget, bonds could see some recovery, with the new 10-year bond seeing strong bids from banks,” said Raju Sharma, chief investment officer – debt at IDBI Mutual Fund.
Reuters reported on Monday about the government’s plans to issue new paper even though market participants had recommended continuing the issuance of the current 2032 paper towards the fag end of the fiscal year.
The new 10-year bond will replace the current benchmark 7.26% 2032 bond, and the yield curve typically moves in alignment with the change in 10-year bond yield.
“We may see the old trend of new 10-year bond cutoff being at a wider premium than the prevailing 10-year bond, as it will not have more than two auctions (in the current fiscal),” said Debendra Kumar Dash, senior vice-president – treasury at AU Small Finance Bank.
“The new bond’s cutoff yield could be 5-7 basis points (bps) lower as chances of yields seeing any abrupt rise will be less.”
The previous two 10-year papers were sold only 3-4 bps below the prevailing benchmark bond.
The current benchmark bond was trading at 7.37%, with the outstanding at 1.48 trillion rupees. The government generally stops issuing a note once the outstanding reaches around 1.50 trillion rupees, even though there is no official limit.
India is expected to announce a gross market borrowing of around 16 trillion rupees, two sources close to the deliberations told Reuters. A Reuters poll predicted a similar number.
A majority of the market participants foresee the central bank maintaining a prolonged pause after one last repo rate hike in the current cycle next week. That is also likely to aid demand in the medium term, traders said.
This story has been published from a wire agency feed without modifications to the text.
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Ganesh
http://ganesh@finplay.inFinance enthusiast, Mutual fund expert.