Money & Banking

Conversion of G-Secs into longer-dated securities gets tepid response

Our Bureau Mumbai | Updated on May 18, 2020

The government, on Monday, got tepid response to the conversion of the 8.27 per cent 2020 government security (G-Sec) into three securities maturing in 2024, 2030 and 2060. It received offers for conversion for only about a third of the total notified amount of ₹30,000 crore.

Best response

The best response the government got was for the conversion of 8.27 per cent 2020 G-Sec (maturing on June 09) into 6.18 per cent 2024 G-Sec, with 25 market players collectively offering about 54 per cent of the notified amount of ₹13,000 crore.

The RBI accepted seven offers for the conversion and issued destination securities (6.18 per cent 2024 G-Sec) aggregating ₹5537.764 crore at a price of ₹103.78 (yield: 5.2180 per cent). G-Sec price and yield move in opposite directions.

The response to the conversion of the 8.27 per cent 2020 G-Sec (maturing on June 09) for its conversion into 5.79 per cent 2030 G-Sec was poor, with seven market players collectively offering just about 5 per cent of the notified amount of ₹13,000 crore. The RBI rejected all the offers.

The second best response the government got was for the conversion of 8.27 per cent 2020 G-Sec (maturing on June 09) into 7.19 per cent 2060 G-Sec, with two market players offering about 53 per cent of the notified amount of ₹4,000 crore.

The RBI accepted the two offers for the conversion and issued destination securities aggregating ₹2026.945 crore at a price of ₹105.36 (yield: 6.7982 per cent).

RK Gurumurthy, Senior Vice-President & Head - Treasury, Lakshmi Vilas Bank, said the lacklustre response to the conversion indicates the reluctance of the market players to take duration risk at a time when there is uncertainty on the quantum of additional borrowings.

According to market experts, the conversion/ switch of G-Secs comes at a time when the government is set to borrow ₹4.20-lakh crore more in FY21 as the pandemic-related expenses for the health and social sectors will mount. It will ease short-term redemption pressures due to maturity of the G-Secs.

Published on May 18, 2020

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor