Government securities rallied on Tuesday, with the yield on the benchmark 10-year G-Sec seeing one of the biggest single-day drop in recent times of about 17-18 basis points (bps) to close the day at sub-6 per cent levels and its price jumping over a rupee.

This came on the back of the Reserve Bank of India unveiling measures to ease liquidity pressures in the market on Monday after market hours. One basis point is equal to one-hundredth of a percentage point.

The thaw in G-Sec yields, if sustained, will help the government borrow at a relatively cheaper interest rate.

The government raised its borrowing programme fior FY21 n early May from ₹7.80-lakh crore, as per Budget Estimate, to ₹12-lakh crore due to the pandemic. The benchmark 10-year G-Sec carrying a coupon rate of 5.77 per cent (or 5.77 per cent G-Sec 2030) closed at a yield of 5.9446 per cent (previous close: 6.1172), with its price jumping ₹1.26 to close at ₹ 98.70 (₹97.44).

Bond yields and prices are inversely correlated, moving in opposite directions.

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, observed that the central bank’s announcement on Monday about conducting additional special Open Market Operation (OMO) aggregating ₹20,000 crore and long-term repo operation (LTRO) aggregating ₹1 lakh crore in September; and the increase in ‘held to maturity’ (HTM) limit for banks had a softening effect on the yields.

Irani assessed that there are two risks that bond markets are currently facing — the stand-off at the India-China border in Eastern Ladakh and the rising domestic debt.

The earlier benchmark 10-year G-Sec carrying a coupon rate of 5.79 per cent (or 5.79 per cent G-Sec 2030) closed at a yield of 5.9051 per cent (previous close: 6.0819), with its price jumping ₹1.17 to close at ₹99.15 (₹97.50).

Related Topics
comment COMMENT NOW