Money & Banking

Bond prices rally ahead of Friday’s auction; yields dip

Our Bureau Mumbai | Updated on February 11, 2021 Published on February 11, 2021

Government security (G-Sec) prices rose by up to 35 paise on Thursday, with their yields softening by up to 7 basis points, as the Reserve Bank of India set higher cut-off price at the special auction of two G-Secs.

Price of the highly-traded 10-year G-Sec, carrying a coupon rate of 5.77 per cent, closed at ₹98.2450, up about 16 paise over the previous close, with its yield thawing about 2 basis points to 6.1054 per cent.

G-Sec prices and yields are inversely related, moving in opposite directions.

Price of the new 10-year G-Sec, carrying a coupon rate of 5.85 per cent, closed at ₹99.17, rising about 35 paise over the previous close, with its yield softening about 5 basis points to 5.9616 per cent.

The cut-off price at the special auction of two G-Secs (5.15 per cent G-Sec 2025 and 5.85 per cent G-Sec 2030) was higher than their prevailing secondary market price, triggering a rally in the secondary G-Sec market ahead of the scheduled auction of G-Secs on Friday.

The G-Sec market has been on tenterhooks about the increased government borrowing programme despite RBI continuing with certain relaxations relating to the quantum of securities banks can hold in the so-called ‘held to maturity’ investment bucket. The higher cut-off will ensure that Friday’s auction sails through without a hitch.

At the auction of the 5.15 per cent G-Sec 2025, the cut-off price at ₹98.38 (yield: 5.541 per cent) was 24 paise higher than the previous close of ₹98.14 (5.5997 per cent).

At the auction of the 5.85 per cent G-Sec 2030, the cut-off price at ₹99.09 (yield: 5.9726 per cent) was about 27 paise higher than the previous close of ₹98.8175 (6.0099 per cent).

Special auction

The government raised ₹26,000 crore via the special auction (₹13,000 crore via each G-Sec against the notified amount of ₹11,000 crore).

On Friday, the government will be raising ₹26,000 crore through sale of four dated securities. The government will have the option to retain additional subscription up to ₹2,000 crore against each security.

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Published on February 11, 2021
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