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The government may end up issuing three or four new 10-year benchmark securities instead of the usual two it has been issuing each of the past years, as it will be borrowing more in FY21 amid the pandemic.
This will ensure that repayments are spread over three-four quarters at the time of maturity of the securities a decade down the line.
With the government, under its revised issuance calendar, planning to raise ₹20,000 crore (including a ₹2,000-crore greenshoe option) every alternate week via a 10-year security, the outstanding in this security could reach ₹1.32-lakh crore by July-end itself.
The government issued a new 10-year benchmark security on May 8 at a coupon rate of 5.79 per cent. It is planning to raise ₹30,000 crore every week via government securities (G-Sec) from May 11 to September 30, 2020.
Outstanding debt
According to bond market expert K Boovendran, the maximum outstanding debt against a G-Sec currently is at ₹1.21-lakh crore. “So, once the outstanding in the 5.79 per cent G-Sec that matures in 2030 reaches about ₹1.20-lakh crore, a new 10-year security will be issued,” he said.
In 2019, the government issued two 10-year benchmark government securities — 7.26 per cent G-Sec 2029 (issued on January 14, 2019) and 6.45 per cent G-Sec 2029 (issued on October 7, 2019).
As per CCIL data, the outstanding debt against 7.26 per cent G-Sec 2029 and 6.45 per cent G-Sec 2029 is at ₹1,18,831 crore and ₹95,840 crore, respectively. Going by this data, the government issued a new 10-year benchmark security once the debt raised via the earlier benchmark security reached ₹1,18,831 crore.
Given that the government will be borrowing 54 per cent more (at ₹12-lakh crore) in FY21 against the budget estimate of ₹7.80-lakh crore to take care of Covid-related spending towards social and healthcare sectors and for reviving the economy, Boovendran said, it could issue at least three new 10-year benchmark securities this year.
Staggered redemption
Marzban Irani, CIO - Fixed Income, LIC Mutual Fund, observed that if the same 10-year security is issued repeatedly, the government will face redemption pressure on a single day at the time of maturity. By issuing three or four 10-year benchmark securities, it can be staggered.
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