Government securities (G-Sec) prices declined on Friday, despite the weekly auction G-Sec sailing through comfortably, as market players decided to book profits.
G-Sec prices had risen over the last couple of days due to Reserve Bank of India(RBI) Governor Shaktikanta Das’ announcement that RBI will increase the quantum of G-Secs it will purchase at the second auction under the G-Sec Acquisition Programme (GSAP) to ₹35,000 crore against ₹25,000 crore it purchased at the first auction.
However, the gains made by G-Secs over the last couple of days were nullified due to profit booking.
Price of the widely traded 2030 G-Sec (coupon rate: 5.85 per cent) fell almost 30 paise to close at ₹98.805 (previous close: ₹99.10), with its yield hardening to close above 6 per cent at 6.0156 per cent (5.9742 per cent). Bond price and yield are inversely related and move in opposite directions.
Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said: “The auction sailed through smoothly. Market participants are mindful that if they bid higher (in terms of yield) at the auction, RBI will either devolve or reject all the bids.”
Operation Twist
In the Operation Twist (special open market operation to simultaneously buy long-term G-Secs and sell short-term G-Secs/Treasury Bills) conducted on Thursday, RBI bought only the 2030 G-Sec for ₹10,000 crore. As per the original announcement, RBI also intended to buy two other G-Secs (maturing in 2026 and 2028). “This shows that RBI is supporting only the benchmark G-Sec,” said Irani.
All four G-Secs-5.63 per cent G-Sec (₹11,000 crore), Government of India Floating Rate Bonds 2033 (₹4,000 crore), 6.64 per cent G-Sec 2035 (₹10,000 crore) and 6.67 per cent G-Sec 2050 (₹7,000 crore)-were subscribed fully.