India's new 10-year bond likely to be issued at above 7% coupon, analysts say

MUMBAI: India’s new 10-year bond will likely be issued at a coupon above 7% for the first time in two years, as the risk of higher inflation and global market pressures drive funding costs up, analysts said.

New Delhi will sell 340 billion rupees ($3.57 billion) of a new 10-year paper on Friday. This note will replace the existing 10-year benchmark 6.48% 2035 bond, currently trading at a yield of 7.05%.

The new paper traded at 7.00% in the when-issued segment of the trading platform.

Assuming crude oil prices remain elevated in the $115 to $120 a barrel range, upward pressure on yields is likely to persist, Harsimran Sahni, head of treasury at Anand Rathi Global Finance said.

“With the current benchmark yield trading above 7.00%, the coupon on the new 10-year issuance is expected to be set in the range of 7.00% - 7.02%, accordingly.”

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The Reserve Bank of India last sold a 10-year paper above 7% in April 2024.

Historically, bond traders bid aggressively for a new benchmark bond to bring the security into their portfolio.

“We expect good demand for the new paper as it is a fresh issuance on the current yield curve and does not carry any mark to market risks, but the cutoff should be closer to the current security, said Alok Singh, head of treasury at CSB Bank.

The outstanding issuance of the 2035 bond currently stands at 2.26 trillion rupees, which is the highest for any 10-year debt to date.