Money & Banking

On first trading day of FY22, G-Sec prices rally

Our Bureau. Mumbai | Updated on April 05, 2021

Gilt securities allow investors to lock in to an interest rate for long-term IStocK designer491

Government security (G-Sec) prices rallied on Monday, the first trading day of the new financial year, on expectations that the monetary policy committee (MPC) will leave the repo rate unchanged at 4 per cent amid uncertainty on economic recovery in the wake of recent spike in Covid-19 cases.

Price of the 10-year benchmark G-Sec (carrying a coupon rate of 5.85 per cent) was up 38 paise to close at ₹98.0225 over the previous close (₹97.64), with its yield declining about five basis points to 6.1231 per cent (6.1768 per cent).

Price of the 5-year G-Sec (carrying a coupon rate of 5.15 per cent) jumped about 49 paise to close at ₹98.295 over the previous close (₹97.81), with its yield declining about four basis points to 5.5747 per cent (5.6971 per cent).

Bond yields and prices are inversely related. They move in opposite directions.

Price of the 10-year benchmark G-Sec fell ₹2.24 since December-end 2020 to end the fourth quarter at ₹97.64. Yield on this G-Sec surged about 31 basis points to close at 6.1768 per cent in the fourth quarter.

M Govinda Rao, Chief Economic Adviser, Brickwork Ratings, said: “Given the rise in the spread of Coronavirus and the imposition of fresh restrictions to contain the virus spread in major parts of the country, the RBI is likely to continue with its accommodative monetary policy stance in the upcoming MPC meeting.”

Considering the inflationary risks, he expects the MPC to adopt a cautious approach and hold the repo rate at 4 per cent in its upcoming meeting.

Kavita Chacko, Senior Economist, CARE Ratings, observed that domestic bond yields would continue to be pressured, given that sizeable issuances of government securities are planned for the coming months (₹7.24-lakh crore, which is 60 per cent of the targeted borrowing for FY22, is to be raised during April-September 2021) amid a resurgence in inflation and the continued sell-off in global bonds.

At the same time, the RBI is likely to announce measures to anchor bond yields at its upcoming policy meet, she added.

Published on April 05, 2021

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