Page 42 - Banking Finance May 2025

ARTICLE

Dominance of Sovereign Bonds in Institutional Portfolios

This journey of more than a century prolonged period has seen the depth of the sovereign bond market gravitating further
so much that close to 80% of the following top PSU Bank's domestic investments are parked in these government backed
securities.

Q2FY2025
Rs. In Crores

SBI BOB PNB UBI Canara IOB
Domestic Investment 15,98,761 3,60,244 4,70,391 3,57,175 3,75,568 1,03,128
SLR 13,10,905 3,00,180 3,48,490 2,84,423 3,26,523 78,218
SLR (%) 82% 83% 74% 80% 87% 76%

The government securities comprising of Central which these government securities are issued through
Government Bonds, State Development Loans, Treasury auctions conducted by governments banker, the Reserve
Bills, Sovereign Gold and Green Bond have been used as Bank of India. Different maturity paper attracts differential
benchmark for pricing other similar financial instruments. coupon. This financial year the issuances have ranged from
The Government Securities issuance announced in the 3 years to 50 years, with coupon yield ranging from 6.64%
budget document every year helps gauge India's fiscal to 7.34%. These coupons are the borrowing cost of the
discipline. This in turn is used by the international market government. Hence, during benign interest rate scenario,
pandits to assign the country's credit rating. government tends to borrow more to avail the benefit of
low interest cost. This issuance forms part of the primary
Regular and transparent issuances of government securities market.
signal fiscal discipline, while benchmark yields, such as those
on 10-year bonds, serve as key indicators for credit rating New Issuances FY2025
agencies. Low yields demonstrate investor confidence and
New GS 2034 New GS 2039 New GS 2064
effective fiscal management, while high yields can highlight
7.10% 7.23% 7.34%
fiscal strain, influencing a country's creditworthiness. At
present, Standard & Poor's credit rating for India stands at New GS 2027 New GS 2029 New GS 2031
BBB- with positive outlook. Moody's credit rating for India 7.02% 7.04% 7.02%
was last set at Baa3 with stable outlook. DBRS' credit rating New GS 2054 New GS 2034 New GS 2039
for India was last reported at BBB (low) with positive 7.09% 6.79% 6.92%
outlook.
New GS 2074 New GS 2027 New GS 2029
7.09% 6.64% 6.75%
In general, these credit ratings are used by sovereign wealth
funds, pension funds and other investors to gauge the credit New GS 2031 GOI SGrB 2034 GOI SGrB 2034
worthiness of India thus having a significant impact on the 6.79% 6.79% 6.90%
country's borrowing costs. A robust bond market anchored
by sound fiscal policies lowers borrowing costs, enhances Once, these securities make way into the hands of primary
global investor confidence, and strengthens a nation's dealers, who are underwriters to government issuances, the
creditworthiness, fostering long-term economic stability and market demand decides the premium or discount at which
growth. these securities trade. Usually, government issues, securities
to the tune of Rs.1 lakh crore in a particular tenor, hence
Yields, Market Sentiments, and Bench- for example, New GS 2031 which got issued at 6.79% on
the day of its first issuance, gets re-issued as 6.79%GS2031
marks in subsequent auctions till it reaches the quantum of Rs.1

The borrowing cost of the government is the coupon at Lakh crore. As long as the quantum of issuance remains

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