Fin min source says more flexible with outstanding in single gilt

Informist, Tuesday, Feb 6, 2024

–Fin min source: More flexible with issuance size of a single gilt

–Fin min source: Raised 10-yr gilt outstanding to close FY24 auctions

–Fin min source: May sell 30-50 yr gilts for a yr after first issue

By Aaryan Khanna

NEW DELHI – The government allowed the outstanding on the current 10-year benchmark government security to cross the informal limit of 1.50 trln rupees mainly because it did not want to issue a new benchmark bond when the borrowing for the financial year was ending, a senior finance ministry said.

“The market has previously asked us not to issue a bond for only one or two auctions at the end of the year,” the official said, adding that the previous limit of 1.50 trln rupees was “arbitrary” and not a “hard cap”. The government’s borrowing through dated securities for 2023-24 (Apr-Mar) ends next week.

The current outstanding on the 10-year benchmark 7.18%, 2033 bond is 1.85 trln rupees, with the government issuing the paper twice in January even after its outstanding crossed 1.5 trln rupees. On Monday, it said it would sell 160 bln rupees of the bond again on Friday, potentially pushing its outstanding beyond 2 trln rupees.

The previous 10-year benchmark 7.26%, 2033 bond was issued on Feb 6 last year, seeing two issuances of 120 bln rupees each before the Oct-Mar borrowing calendar ended on Feb 24. It did not find currency in trading books and only gained 10-year benchmark gilt status, of the most-traded security, in late April. The initial issuances were largely mopped by state-owned banks, which limited the secondary market trade in the security, bond market dealers had said at the time.

The government will be more flexible on the total outstanding in a single bond with higher amounts for longer-term bonds and vice versa, the official said.

Besides the 10-year benchmark, there are currently six other government securities with outstanding of more than 1.50 trln rupees–7.10%, 2029 bond, 6.67%, 2035 bond, 7.18%, 2037 bond, 7.36%, 2052 bond, 7.40%, 2062 bond and 7.25%, 2063 bond. The highest outstanding in a single bond currently is 2.16 trln rupees, on the 7.25%, 2063 bond.

For short-term bonds with maturity up to seven years, the government may cap outstanding to around 1 trln rupees, the official said. “We have cut down the size of issuance in a short-term bond because there were some concerns about residual maturity,” the official said.

As for long-term bonds, the government does not have a cap in mind and will decide on a week-to-week based on the market’s appetite and discussions with the Reserve Bank of India. This has given it the confidence to potentially issue 30-50 year bonds for a year after their first issuance, the official said. The government has pegged its issuance in 30-50-year papers at one-third of its gross market borrowing in 2023-24.

“In case of the 30-50 year bonds, I don’t see a problem of repayment or demand even if we issue them for a year (after issuance),” the official said. “Between the rate of inflation and the size of the economy growing, repayment in those maturities is not going to be a problem.” End

Edited by Akul Nishant Akhoury

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