On 5th January 2018, the government will auction a New 10 year bond for Rs 90 billion. All to be auctioned bonds are traded in the “When Issued” market. The New 10 Year Government bond is eligible for “When Issued” trading for a period of 4 days, commencing from 2nd January 2018 to 5th January 2018.
On 2nd January 2018, in the When-Issued market, the new 10-year bond was trading at a yield of 7.17 %. However, in the regular market, the current 10-year benchmark bond is trading at 7.38% levels. The reason for the new 10-year bond to trade 21 bps below the old 10-year bond is that the old bond has become an “Off the Run” bond from “On the Run” bond. Traders will not want to hold the old bond and would instead want to hold the new bond, leading to a sharp divergence in yields. Read our note on “On the Run and Off the Run bonds.
To know more about when-issued market please see video on two minute concept series on when issued market