Long-Term Borrowings

The government is planning to issue its first long term bonds next month on the back of low risk interest rates.
A ten-year government bond will be auctioned early next month in a move that will almost double the length of the government risk free yield curve.rn

rnThe public debt department of the Central Bank is expected to offer a billion rupees worth of 10 year long bonds through an auction in mid January.rn

rnCentral Bank says the bonds will have an annual coupon as opposed to the quarterly and half yearly coupons offered for T-bonds at present.rn

rnPrimary dealers expect the bond to have a coupon of 10 to 11 percent with an annual yield of around 11.5 percent. rn

rnThe markets were also however speculating the possibility of another 50 basis point rate cut, before the long bonds are issued next month.rn

rnAn earlier attempt by the public debt department to issue long term bonds bypassing the auction system met with stiff resistance by the primary dealers.rn

rnThe public debt department in anticipation of lower interest rates subsequently put off the issue.rn

rnHowever the Central Bank has this time around decided to stick to the auction format where primary dealers can bid at the coupon rate or at a premium or a discount to it.rn

rnThe longest tenures in government debt available at present are the six-year bonds first issued in May 2000. rn

rnThe government has announced its intention of maintaining single digit inflation and interest rates over the long term.(LBR)rn