Prices of government securities (G-Secs) rallied by more than a rupee on Tuesday on short covering due to expectations that the Reserve Bank of India may either buyback G-Secs or do ‘Operation Twist’ to soften yields.
G-Sec yields had risen quiet sharply after the RBI upped the repo rate by 40 basis points last week.
From the government point of view, G-Sec yields need to thaw as it has a huge borrowing programme of ₹14.31-lakh crore in FY23. Else, it will have to pay more to raise resources.
Price of the 10-year benchmark G-Sec (coupon rate: 6.54 per cent) jumped more than a rupee (about 108 paise) to close at ₹94.765 (previous close: ₹93.69).
Yield of this security plummeted about 16 basis points to close at 7.3015 per cent (7.4646 per cent).
Bond price and yield are inversely co-related and move in opposite directions.
Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said, “Since last Friday news that the government is uncomfortable with the high yields and that it is in talks with RBI regarding possible measures to cool them has been doing the rounds.
“Yield of the US 10-year Treasury note as well Brent crude oil price have come down. So, all these factors pushed G-Sec yields down.”
Price of the 13-year G-Sec (coupon rate: 6.67 per cent) shot up by about ₹1.17 to close at ₹93 (₹91.835).
Yield of this security dipped about 15 basis points to close at 7.4989 per cent (7.645 per cent).
Given that the government will receive proceeds from the LIC IPO (amounting to about ₹21,000 crore) and also get surplus transfer from RBI, there is a possibility that the central bank could either cancel a couple of auctions or partially devolve them on primary dealers if it finds that bids have been placed at higher yields, said a bond dealer with a public sector bank.