Prices of Government Securities (G-Secs) rose on Friday after the previous day’s sharp fall as the RBI did not devolve the 10-year benchmark G-Sec on primary dealers despite rejecting all bids for it at the auction.

The price of the 10-year benchmark (carrying 5.85 per cent coupon rate) ended up 27 paise at ₹98.275 (previous close ₹98.01), with its yield thawing about 4 basis points to 6.0885 per cent (6.1256 per cent).

Rejects all bids

Of the three G-Secs that were being auctioned, the RBI rejected all bids it received for the benchmark 5.85 per cent GS 2030. However, it did not devolve this paper on PDs, which underwrite the auctions. The government was planning to borrow ₹14,000 crore through this paper.

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said: “The yield on the 10-year benchmark G-Sec had gone up to 6.17 per cent in the secondary market before the auction. So, market participants would have bid at a higher yield at the auction of this paper.

“But the RBI doesn’t want the yield to go up. So, there was no borrowing through this paper. The government only borrowed via the short-term paper (maturing in 2022) and the long-term paper (2061).”

The government borrowed ₹5,090 crore via auction of the 3.96 per cent GS 2022 (against the notified amount of ₹3,000 crore) and ₹6,236.80 crore via auction of the 6.76 per cent GS 2061 (against the notified amount of ₹9,000 crore).

So, the government borrowed only ₹11,327 crore out of the planned borrowing of ₹26,000 crore at the weekly auction of three G-Secs.

“The yields came down because neither the RBI accepted bids at the auction of the 10-year paper nor did it devolve this paper on PDs,” said Irani.

He observed that the yield curve is inverted, with the yield of the nine-year at 6.5044 per cent higher that 10-year’s 6.0885 per cent.

G-Sec prices had tumbled on Thursday as the RBI purchased some of the securities under its G-Sec Acquisition Programme (G-SAP) at lower than previous closing price.

 

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