India Bond Market
India Bond Market

Volatility Grips Bond Market As RBI Announces New 50-Year Bonds; Fresh Auctions

The government is expected to borrow Rs 6.55 lakh crore in the second half of this fiscal through long-dated securities, which includes the new 50-year bonds.

The Reserve Bank of India (RBI) has announced fresh auctions of treasury bills (T-bills) and state development loans (SDLs) amid a highly volatile bond market this week as the US and Eurozone government bond yields headed towards their biggest quarterly rise in a year.

On Thursday, RBI kept the tentative yields for its three-month, six-month, and 364-day T-bill auctions at 6.92 per cent, 7.07 per cent, and 7.08 per cent, respectively. T-bill yields remained relatively stable over the past few months after witnessing significant movements early this year.

This time, 14 states will participate in SDL auctions: Uttar Pradesh, Telangana, West Bengal, Uttarakhand, Tamil Nadu, Punjab, Madhya Pradesh, Kerala, Haryana, Chhattisgarh, Bihar, Assam, Andhra Pradesh, and Rajasthan. Telangana and Andhra Pradesh are offering the highest interest rates at 7.5 per cent for their SDLs maturing on October 4, 2044, and October 4, 2041, respectively. All other states are offering more than 7.4 per cent interest rates.

The auction announcement comes after the government on Tuesday said it would borrow Rs 6.55 lakh crore in the second half of this fiscal out of a total scheduled borrowing of Rs 15.43 lakh crore in 2023-24, which include the new 50-year bonds spread over the weekly auctions.

Venkatakrishnan Srinivasan, founder of Rockfort Fincap LLP, a financial advisory firm, says, “The government auction calendar for the next six months was announced with the introduction of a new 50-year sovereign government bond for the first time. It has also announced Rs. 20,000 crores of sovereign green bond issuance against all odds.”

Regarding market volatility, he adds that “Despite India’s inclusion in the JP Morgan Emerging Bond Market Index, the 10-year government bond went up to 7.24 per cent till Thursday. However, it has eased to 7.20 per cent during the trading hour on Friday, tracking the positive movements in US treasury yields.”

It is reported that the centre’s decision to issue 50-year bonds is to satisfy the demand from insurers and provident funds for government securities that guarantee safety and high returns.

Bond Market Trends

It is expected that insurers and provident funds will participate in a big way at the Indian government bond auctions for long-dated securities, scheduled to happen by the month-end.

Globally, the bond market remained largely stable despite seeing a sharp increase in government bond yields in the US, and the Eurozone, hitting fresh multi-year highs this week as they head for their biggest quarterly rise in a year.

Reuters on Friday reported that the 10-year US treasury yield fell to 4.59 per cent after climbing to 4.68 per cent the day before, the highest level since October 2007. Similarly, Germany’s 10-year bond yield, the Eurozone benchmark, fell to 2.86 per cent after climbing 13.5 bps and is on course to close the week at its highest level since early July.

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