Government security prices fell on Friday, erasing the previous day’s gains, as the auction of the 2035 security partially devolved on Primary Dealers (PDs) up to 61 per cent of the ₹11,000 crore it wanted to raise.

While the Government managed to mop up ₹27,126 crore through auction of four securities, including the aforementioned security, against the notified amount of ₹26,000 crore, there was nervousness in the secondary G-Sec market when the 6.22 per cent G-Sec, maturing in 2035, devolved on PDs.

Active role

PDs are intermediaries that play an active role in the G-Sec market, both in primary and secondary markets, by participating in the primary auction and market making in G-Secs, among others.

The price of the highly traded 10-year G-Sec, carrying a 5.77 per cent coupon rate, declined about 29 paise to ₹97.9525 over the previous close of ₹98.2450, with the yield going up about four basis points to close at 6.057 per cent (previous close: 6.0154 per cent).

G-Sec price and yield are inversely related and move in opposite directions.

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said the yields went up due to the devolvement of the 15-year G-Sec on PDs. While retail inflation has declined from 4.59 per cent in December 2020 to 4.06 per cent in January 2021, there is concern on the core inflation front and yields could come under pressure, Irani added.

10-year G-Sec

Price of the 10-year G-Sec (issued in December 2020), carrying a 5.77 per cent coupon rate, declined 21 paise to ₹98.96 over the previous close of ₹99.17, with the yield going up about three basis points to close at 5.9905 per cent (5.9616 per cent).

Government security (G-Sec) prices rose by up to 35 paise on Thursday, with their yields softening by up to 7 basis points, as the Reserve Bank of India set higher cut-off price at the special auction of two G-Secs.

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