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Government Securities (G-Sec) prices tumbled on Thursday as the Reserve Bank of India (RBI) purchased some of the securities under its G-Sec Acquisition Programme (G-SAP) at lower than the previous closing price.
Yield up 11 basis points
The price of the 10-year benchmark (carrying 5.85 per cent coupon), which was part of the open market purchase of G-Secs under G-SAP, plummeted about 82 paise to close at ₹98.01 (previous close ₹98.825), with its yield shooting up about 11 basis points to close at 6.1256 per cent (6.0114 per cent).
Bond price and yield are inversely related, moving in opposite directions.
Of the five G-Secs that the RBI purchased under G-SAP, the purchase price of the 10-year benchmark was lower at ₹98.68 (yield: 6.0317 per cent) against the previous close of ₹98.825 (6.0114 per cent).
RBI purchased the 2027 G-Sec, carrying 6.79 per cent coupon rate, at ₹103.30 (6.1303 per cent) against the previous close of ₹103.50 (6.0915 per cent).
However, the central bank purchased the other G-Secs at a price that was higher than the previous close – 4.48 per cent G-Sec 2023 (3 paise higher); 5.15 per cent G-Sec 2025 (11 paise higher); and 6.22 per cent G-Sec 2035 (6 paise higher).
Though the RBI infused ₹25,000 crore liquidity via G-SAP, the spike in G-Sec yields in the secondary market reflects the disappointment of the market, with the purchase price/ yields set at the open market purchase.
Under G-SAP, the RBI commits upfront to a specific amount of open market purchases of G-Secs, with a view to enabling a stable and orderly evolution of the yield curve amid comfortable liquidity conditions.
The central bank’s endeavour is to ensure congenial financial conditions for the recovery to gain traction. For Q1 (April-June) of 2021-22, the RBI has decided on a G-SAP of ₹1 lakh crore.
The price of the 2035 G-Sec (carrying 6.22 per cent coupon), which was also part of the open market purchase of G-Secs under G-SAP, plunged about 93 paise to close at ₹95.47 (previous close ₹96.40), with its yield shooting up about 11 basis points to close at 6.7255 per cent (6.6190 per cent).
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