Will the 10-year G-Sec issued in May lose shine?

The current financial year’s first 10-year Government Security (G-Sec), issued in early May 2020, could lose its shine as the government has decided to issue a new 10 year G-Sec within three months of the first issuance.

Market players are of the view that once the new 10-year G-Sec is issued on Friday (July 31), the trading focus will shift to the new security on expectation of more auctions in the paper and assurance of liquidity.

Usuallythe government issues one or at the most two 10-year G-Secs in a financial year to mop up resources. In case there are two issuances, a fairly large gap is ensured to avoid redemption pressure.

For example, last financial year, only one 10 year G-Sec was issued – the 2029 G-Sec carrying 6.45 per cent coupon rate – in October 2019 and auctions in it were held subsequently.

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said: “The 5.79 per cent G-Sec (maturing in 2030) was issued on May 11, 2020.

“Normally, once the outstanding in a paper reaches around ₹1 lakh crore, a new 10 year G-Sec is announced, else there will be redemption pressure on a particular date.”

The outstanding in the 5.79 per cent 2030 G-Sec as on date is ₹1,04,000 crore.

Old G-Sec to lose shine

Bond market expert K Boovendran said: “When a new 10 year G-Sec is issued the focus will shift to that new security. Demand will be more for the new security. The old 10 year security no more shines.”

He underscored that at the rate of ₹18,000 crore per auction, the outstanding in the new 10 year G-Sec will reach a level of ₹1,08,000 crore in six auctions or in three months.

Irani observed that earlier there used to be a new 10 year G-Sec issuance every 8 to 9 months. Hence, there was excitement to participate in the auctions.

“Now with a new 10 year being issued every 3 to 4 months that excitement will get reduced,” he said.

Boovendran said barring the 5.79 per cent G-Sec maturing in 2030, other 10-year securities like 7.88 per cent G-Sec 2030 and 7.61 per cent G-Sec 2030are trading at 6.07 to 6.08 per cent yield level.

“Ideally, the yield of the new 10 year G-Sec should also be around 6.07 per cent…I think, the cut-off will be 5.85 to 5.90 per cent,” he added.