The Government’s debt switch programme and an expectation of a policy rate hike are likely to keep the yields on government securities (G-Secs) at elevated levels, according to bank treasury officials.
The debt switch programme worth Rs 50,000 crore, which was scheduled in the second half of this fiscal as announced in the Budget, is likely to be implemented in January and will be conducted through the bond market and not the RBI, said a banker.
According to Mohan Shenoi, President–Group Treasury and Global Markets, Kotak Mahidnra Bank, “Even the expectation of the programme is likely to keep the yields of short-term securities at above 9 per cent levels.”
According to the programme, the Government will buy short-term securities and sell an equivalent amount of long-dated securities to ease near-term redemption pressures on government finances.
The Government's fiscal deficit has already reached 84 per cent of its stated target in the first seven months of the fiscal year, compared with 72 per cent in the same period a year ago, implying the need for greater expenditure restraint than last year, to meet the deficit target.
The yields on the benchmark 8.83 per cent Government security, which matures in November 2023, had climbed to 8.91 per cent on December 9, the highest since it was issued on November 22 at 8.83 per cent. On Thursday, it ended a tad higher at 8.84 per cent from its previous close of 8.83 per cent.
The yield on the old benchmark 7.16 per cent security (also maturing in 2023) closed slightly higher at 9.18 per cent from 9.17 per cent.
Awaits FOMC meeting Treasury officials do not see much movement in G-Sec yields unless significant announcements are made in the FOMC and the RBI’s monetary policy meets.
“The banks may not prefer to subscribe to the securities at this point. Essentially, pension and insurance companies will be buying the long-term securities,” said Ashok Gautam, Senior Vice-President, Global Markets, Axis Bank.