Money & Banking

G-Sec yields rise sharply on the last trading day of FY22

Our Bureau | Updated on: Mar 31, 2022

Bonds the word on wooden cubes, cubes stand on a reflective surface, in the background is a business diagram. Business and finance concept | Photo Credit: Dzmitry Skazau

Prices of 10-yer G-sec plunge 41 paise

Prices of government securities (G-Secs) declined sharply on Thursday, the last trading day of FY22, as some market players sold amid uncertainty about how much the government will borrow in the first half of FY23 and the upcoming three-day trading holiday beginning April 1.

Price of the 10-year benchmark G-Sec (coupon rate: 6.54 per cent) plummeted 41 paise to close at ₹97.85 (previous close: ₹98.26). Yield of this paper jumped about 6 basis points to close at 6.8431 per cent (6.7841 per cent).

Bond market players underscored that yield of the benchmark paper shot up about 30 basis points (bps) since it was first issued on January 14. So, roughly the loss on this paper is about ₹2.10 during the quarter.

Similarly, the yield of the widely traded 9-year paper (coupon rate: 6.10 per cent) jumped about 41 basis points (bps) during the quarter. So, the loss on this paper is about ₹2.68.

Even if banks would have bought the aforementioned papers at higher yields and sold at lower yields during the course of the fourth quarter, it is unlikely they would have covered the losses. Hence, they may have to make mark-to-market provisioning, say traders.

The government and RBI announced the calendar for issuance of G-Secs for the first half of FY23 and the calendar for auction of Treasury Bills for the first quarter after trading hours.

Govt borrowing

The calendar for issuance of G-Secs shows that about 59 per cent (or ₹8.45 lakh crore) of the gross Government borrowing aggregating about ₹14.31 lakh crore for FY23 will happen in the first half. The government will borrow ₹4.32 lakh crore via T-Bills in the first quarter.

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said: “The government will be borrowing ₹32,000-33,000 crore on an average per week via G-Sec auctions. It will also borrow ₹33,000-34,000 crore on an average per week via T-Bill auctions.

“Plus, States borrowing programme is also there. This huge supply of paper will create upward pressure on bond market yields.”

Meanwhile, RBI has clarified that that investments in special securities received by public sector banks from the government towards their recapitalisation requirement from FY 2021-22 onwards should be recognised at fair value / market value on initial recognition in HTM (held to maturity) category.

“Any difference between the acquisition cost and fair value…shall be immediately recognised in the Profit and Loss Account,” the central bank said.

Published on March 31, 2022
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