Bond market players seem to have lost interest in the so-called 10-year benchmark Government Security (G-Sec) as the central bank has accumulated a chunk of this paper, reducing its attractiveness for trading.

The number of trades in the 2030 G-Sec (carrying 5.85 per cent coupon rate) has shrunk drastically from 993 on May 28 to 31 on June 29.

The Reserve Bank of India (RBI) has been mopping up this paper via Special Open Market Operations (OMO) and G-Sec Acquisition Programme (G-SAP).

This is aimed at keeping G-Sec yields on a leash as the government has a huge borrowing programme of ₹12.10 lakh crore in FY22. RBI has been focussed on buying this paper to ensure a stable and orderly evolution of the yield curve.

New benchmark

Given that the central bank is holding almost three-fourth of the ₹1.20 lakh crore outstanding amount in the 5.85 per cent 2030 G-Sec and liquidity has dwindled in this paper, market experts say it’s time the government introduced a G-Sec maturing in 2031, which will become the new 10-year benchmark.

They emphasised that at the weekly auctions of the 5.85 per cent 2030 G-Sec over the last one month or so, RBI has either devolved it on primary dealers (PDs) or rejected all the bids as investors want to buy it at a lower price (or higher yield).

Referring to the tug-of-war between institutional investors and RBI, experts say investors want the yields to go up, but the central bank wants to suppress the yields to ensure that the government can borrow at a cheaper rate.

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said: “They (Government) may float a new 10-year G-Sec after a week or two. Nobody has interest in the 5.85 per cent 2030 G-Sec.

“About three-fourth of this paper is with RBI and the rest is with nationalised banks. So, who will trade in it? There is no tradability in this paper.”

Madan Sabnavis, Chief Economist, CARE Ratings, observed that the market is still demanding more (in terms of yield) from the government given the large borrowing programme as well as the rising inflation trend.

Since the 5.85 per cent 2030 G-Sec was first introduced on December 1, 2020, its price has declined by ₹1.455 to Rs 98.67 on Tuesday, with its yield rising about 20 basis points to about 6.04 per cent. Bond price and yields are inversely related and move in opposite directions.

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