Tag: 10-year g-sec

RBI devolves 10-year G-Sec auction

Banking & Finance

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The Reserve Bank of India (RBI) devolved the recently issued 10-year government security (G-Sec) on primary dealers (PDs) to the tune of 80 per cent of the notified amount at the weekly auction held on Friday as bidders wanted to the buy the paper at a lower price vis-a-vis the prevailing market price.

By devolving the paper on the PDs, the central bank is trying to keep the G-Sec yields in check. Bond price and yields are inversely related and move in opposite directions.

At the auction, PDs had to pick up the GS 2031 aggregating ₹11,144.145 crore against the notified amount of ₹14,000 crore.

The cut-off price for the paper came in at ₹99.63 (versus the previous close of ₹99.7225). Cut-off yield was at 6.1498 per cent (6.1373 per cent).

In the secondary market, price of the aforementioned G-Sec closed about 20 paise lower at ₹99.52 vis-a-vis the previous close. Its yield rose about 3 basis points to close at 6.1648 per cent.

The auction of the other two papers — 4.26 per cent GS 2023 (notified amount: ₹3,000 crore, with greenshoe amount of ₹750 crore being accepted) and 6.76 per cent GS 2061 (₹9,000 crore, with greenshoe amount of ₹2,250 crore being accepted).

PDs play vital role

Madan Sabnavis, Chief Economist, CARE Ratings, observed that the G-Sec auctions on Friday followed the familiar path of PDs playing an important role in subscribing to the offerings.

“We can see that the 10-year yield has been crawling up over the weeks and while the RBI did manage the yield curve and keep the rate at around 6 per cent, the market has been demanding a higher return. The average cost for these three papers is 6.28 per cent,” he said.

Sabnavis noted that there will be one more auction next week before the Monetary Policy Committee meets and the market is awaiting the tone of the discourse.

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RBI pays higher-than-expected price to buy 10-year G-Sec

Banking & Finance

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The Reserve Bank of India paid about 38 paise more to purchase the 10-year Government Security (G-Sec) under the third tranche of the G-Sec Acquisition Programme 1.0 in a bid to keep bond yields on a tight leash.

The central bank bought this G-Sec (coupon rate: 5.85 per cent) at ₹98.99 (yield: 5.991 per cent) against the previous close of ₹98.6075 (6.045 per cent).

The move to buy the aforementioned security at a higher price had the desired effect as it closed about 18 paise higher at ₹98.79 than the previous close, with the yield declining about 3 basis points to 6.0192 per cent.

Bond yield and price are inversely related and move in opposite directions.

Under G-SAP 1.0, the central has committed upfront to a specific amount (₹1-lakh crore in the first quarter of FY22) of open market purchases of G-Secs to enable a stable and orderly evolution of the yield curve amidst comfortable liquidity conditions.

Of the six G-Secs and State development loans of 12 States the central bank intended to buy aggregating ₹40,000 crore, it invested about 67 per cent of the amount (or ₹26,779 crore) in buying the 10-year paper.

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said: “the 10-year G-Sec is the most widely-traded security. It is the signalling rate. Most of the borrowing is in the belly (10-year to 15-year) of the curve.

“In the last two days, prices had fallen based on the upcoming Fed event and profit booking. So probably it was bought 38 paise up.”

He underscored that most of the float is with RBI in 10-year benchmark paper.

“Probably RBI gave an exit to investors holding this paper so that those they can participate in auctions going ahead and support the borrowing,” Irani said.

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70 bps decline in price of 10-year G-Sec

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Price of the benchmark 10-year Government Security (G-Sec) declined by about 70 basis points, with its yield rising about 10 basis points, as two of the four G-Secs devolved on primary dealers (PDs) at the auction held on Thursday.

The central bank devolved about 97 per cent of the notified amount of ₹11,000 crore at the auction of the 2025 G-Sec (coupon rate: 5.15 per cent).

It also devolved about 99 per cent of the notified amount of ₹11,000 crore at the auction of the 2030 G-Sec (coupon rate: 5.85 per cent).

PDs’ bid to underwrite various amounts in G-Sec auctions at different commission rates. Market players say the RBI agreed to pay a relatively higher commission for PDs at Thursday’s auction, and the devolvement of the two aforementioned G-Secs on them should be seen in this context.

In the case of auction of the 2022 G-Sec (3.96 per cent), the RBI accepted a greenshoe amount of ₹145.052 crore over and above the notified amount of ₹2,000 crore.

In the case of auction of the 2061 G-Sec (new issuance), the RBI accepted partial amount of ₹3,501.335 crore against the notified amount of ₹7,000 crore.

“Devolvement on PDs and fatigue in the market (about over supply of G-Secs) are the main reasons why yields went up today,” said Marzban Irani, CIO-Fixed Income, LIC Mutual Fund.

Irani observed that yields may nudge up next week as PDs will start selling the G-Secs that devolved on them. The Bond market is closed on Friday on account of Chhatrapati Shivaji Maharaj Jayanti.

In the secondary market, price of the 10-year benchmark (2030/ 5.85 per cent coupon) G-Sec fell 73 paise to ₹97.94 over the previous close, with its yield going up about 10 basis points to 6.1318 per cent.

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