Yield on the benchmark 10-year Government Security (G-Sec) hardened about 2 basis points on Tuesday as the government announced that it will mobilise resources via a special auction a day ahead of the scheduled auction on Friday.
The government’s announcement to raise resources via two back-to-back auctions on Thursday and Friday seems to have nullified the Reserve Bank of India’s (RBI) move to purchase of G-Secs via open market operation to check the rising yields in the secondary G-Sec market.
The government plans to raise up to ₹26,000 crore (notified amount: ₹22,000 crore plus additional subscription option: ₹4,000 crore) by selling two G-Secs (re-issue) via a special auction on Thursday. On Friday, it will mobiliise ₹26,000 crore via the scheduled auction of via four securities.
Yield on the 10-year benchmark G-Sec, carrying a coupon rate of 5.77 per centhardened about 2 basis points to close at 6.1105 per cent against the previous close of 6.0870 per cent. The price of this security declined about 17 paise to close to ₹97.5750.
Bond yields and price are inversely related, with the two moving opposite directions
In a report ‘Bond Fatigue, Dwindling Options’, Crisil observed that as economic recovery is gaining momentum, there will be a pick-up in credit growth and banks will now have more options than the government to lend to. This could put some pressure on G-sec yields.
The Centre has budgeted to borrow ₹12.1-lakh crore next fiscal, only a shade less than the ₹12.8-lakh crore in fiscal 2021 (revised estimate) and much higher than the ₹7.1-lakh crore in fiscal 2020. Stressed state finances means supply of state development loans could be copious as well, the credit rating agency said.