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10 year Government Security
 

  • To fund its fiscal deficit, Government of India (GOI) issues securities-short and long term.
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  • GOI funds around 90% of its fiscal deficit through dated securities.
  • Among the different tenure dated securities issued, 10 year security represents where most of the borrowing takes place.
  • India, following international standards, considers 10 year security as the benchmark security.
  • Also, GOI generally takes mid to long term view on borrowing and long term view commonly being for a 10 year, having a 10 year benchmark seems viable.
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Issuance of 10 year benchmark security
 

  • Generally, RBI issues 10 year benchmark security on behalf of GOI at the start of the fiscal year setting the yield curve trend for the year.
  • Table below shows issuances and outstanding amount of 10 year benchmark securities.

 

 

  • As seen from above table, most of the time, 10 year benchmark security has been issued start of the fiscal year.
  • Generally, there is one benchmark security for a fiscal year except in 2009 and 2014.
  • New benchmark security is issued when outstanding amount generally crosses above 70,000cr.
  • Chart below shows borrowing under 10 year security and other dated securities as % to total auction borrowing amount accepted1.

 

 

  • From above chart, it can be observed that a 10 year security represents more than 10% of the borrowing.
  • Chart below shows minimum, maximum and average 10 year security yield from 2000 till 20142.

 

 

  • Below chart is a histogram showing the frequency (in %) of 10 year yield in different yield range from 2003 till 2014 (data till 19th December 2013).

 
Yield Range
 

  • It’s observed from above that around 66% of times 10 year yield ranges between 7 to 8%.
  • 10 year yield has been in the range of 9% or more only around 1.49% of time.

 

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