The government may cancel the last weekly securities auction of FY2021 on rising expectations that the overall direct tax collection will exceed the revised target.

This, in turn, could soften Government Security (G-Sec) yields in the run up to the close of the fourth quarter and the financial year.

Market players expect the last weekly G-Sec auction for ₹20,000 crore to be cancelled as advance tax collections have turned positive at the end of the fourth instalment and the government has cash balances with the Reserve Bank of India.

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, observed that there were reports that the government will weigh whether it needs money from the last weekly auction of FY2021.

“The government is having balances with the RBI. They could have ideally cancelled tomorrow’s auction (aggregating ₹29,000 crore) and next Friday’s auction (aggregating ₹20,000 crore). Given that we are close to the year end, cancellation of the last auction could help vis-a-vis valuation of banks’ treasury portfolio,” Irani said.

Yield inches up

The yield on the 10-year benchmark G-Sec (coupon rate: 5.85 per cent) inched up 2 basis points on Thursday to close at 6.2023, with its price declining about 12 paise to ₹97.45 over the previous close.

The yields in the secondary G-Sec market moved up on Thursday in sync with the US Treasury yields.

The yield differential between the 10-year benchmark G-Sec and the 15-year G-Sec (coupon rate: 6.22 per cent) is now about 63 basis points.

This differential shows that the RBI is intervening in the market, especially through special open market operations (OMOs), to keep the 10-year benchmark yield from rising, bond market dealers said.

The yield on the 10-year benchmark G-Sec has jumped about 30 basis points, with its price dropping about ₹2 since January-end.

Meanwhile, the RBI has announced that it will conduct special OMO, entailing simultaneous purchase and sale of G-Secs aggregating ₹10,000 crore each on March 25.

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