Tag: G-Secs

Auction of three G-Secs aggregating ₹24,000 crore sails through

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The auction of three Government Securities (G-Secs) aggregating ₹ 24,000 crore sailed through on Thursday, with the cut-off on the widely-traded benchmark 10-year G-Sec coming in about 2 basis points lower vis-a-vis the previous close.

The cut-off yield on the benchmark 10-year G-Sec (maturing in 2031 and carrying coupon rate of 6.10 per cent) came in at 6.3441 percent against the previous closing yield of 6.3612 per cent.

The cut-off price on the aforementioned G-Sec was about 12 paise higher at ₹ 98.25 against the previous close of ₹ 98.1275. Bond yields and prices are inversely correlated and move in opposite directions.

The Government mopped up ₹13,000 crore through auction of this paper.

A dealer with a public sector bank said G-Sec yields trended lower on the back of thaw in the US treasury yields. Further, buoyant tax collections and expected pick up in public sector disinvestment are likely to ensure that the government may not go in for additional borrowing.

In the secondary market, yield on the 10-year benchmark G-Sec closed lower at 6.3455 per cent against the previous close of 6.3612 per cent. Price of this security ended up about 11 paise at ₹98.24 against the previous close of ₹98.1275.

Brickwork Ratings, in a recent, report opined that yields are expected to maintain a hardening trend in the short and medium term, and the 10-year gilt yield is expected to remain at around 6.25 per cent in the short run and rise to 6.5 per cent in the later part of the second half (H2) 2022 owing to the augmented government borrowings and the inflationary trend.

The Government raised ₹4,000 crore via auction of the Floating Rate Bond maturing in 2034 at a cut-off yield of 4.8827 per cent and cut-off price of ₹99.25.

Further, the Centre mopped up ₹7,000 crore via auction of a new G-Sec maturing in 2061 at a cut-off yield of 6.9500.

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RBI data, BFSI News, ET BFSI

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MUMBAI: The Reserve Bank of India’s ‘One Nation, One Ombudsman’ scheme is part of its strategy to address customer complaints, which have doubled in the wake of a surge in banking transactions due to increased digital adoption. According to RBI data, with increased awareness, digital penetration and financial inclusion, the number of complaints against various regulated entities more than doubled from 1.6 lakh in FY18 to 3.3 lakh FY20.

The integrated ombudsman scheme will be launched by the Prime Minister on Friday along with the scheme for retail participation in the primary auction of government securities. Under the retail G-Secs scheme, individual investors can access the online portal to open a securities account with the RBI, bid in primary auctions and buy & sell securities in the market. No fee will be charged for any of the services provided under the scheme.

The integrated scheme allows customers to file their complaints from anywhere at any time through portal/ email, or through physical mode at one point of receipt, without the need to identify any specific ombudsman or scheme. It will do away with the jurisdictional limitations as well as limited grounds for complaints. The RBI will provide a single reference point for the customers to submit documents, track the status of complaints filed and provide feedback. The complaints that are not covered under the ombudsman scheme will continue to be attended to by the regional offices of the RBI.

The integrated ombudsman scheme is based on a review of internal grievance redressal of banks and other regulated entities.



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Government announces conversion of two G-Secs into six FRBs

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The government on Wednesday announced the conversion or switch of two Government Securities (G-Secs), both maturing in 2022 and aggregating ₹36,000 crore (face value) into six floating rate bonds (FRBs) maturing between 2028 and 2034.

Thus, the government does not have to redeem the aforementioned G-Secs on their maturity dates — April 13, 2022 (for the security carrying 5.09 per cent coupon rate) and August 02, 2022 (for the security carrying 8.08 per cent coupon rate). Redemption pressure on the government is alleviated to the extent of the face value of the securities being converted or switched.

Also see: A journey towards monetary normalisation

Marzban Irani, CIO – Fixed Income, LIC Mutual Fund, said, “There are two reasons for going in for the conversion or switch of the two G-Secs into FRBs. Firstly, market participants have shown an appetite for this instrument as they expect interest rates to reverse (go up). Secondly, this move postpones the maturity of the G-Secs, thereby lessening the redemption burden on the government.”

Auction for conversion

RBI, in a statement, said the conversion or switch will take place through a multiple-price based auction, which has been scheduled on October 18.

In this auction, successful bids will be accepted at their respective quoted prices for the source and destination securities.

RBI started conducting auctions for the conversion of G-Secs on the third Monday of every month from April 22, 2019.

Bidding in the auction implies that the market participants agree to sell the source security/ies to the government, and simultaneously agree to buy the destination security from the GoI at their respective quoted prices.

Online portal

Market participants are required to place their bids through the e-Kuber portal, giving the amount of the source security and the price of the source and destination security expressed up to two decimal places.

Also see: RBI announcements roil the markets

The price of the source security quoted must be equal to the FBIL (Financial Benchmarks India) closing price of the source security as on the previous working day.

Bond price

Meanwhile, price of the 10-year benchmark G-Sec carrying 6.10 per cent coupon rate moved up about 8 paise to close at ₹98.445 (against the previous close of ₹98.36). Yield of this security thawed about a basis point to 6.3145 per cent against 6.3263 per cent.

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

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G-secs react to the beginning of Fed taper

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Three things happened last week that made happy bond traders trim their long positions, at least, to a certain extent ahead of the second half borrowing calendar set to be released this week.

US treasury yields shot up after the Federal Reserve stated it could cut back on its bond purchases beginning November and conclude the process by the middle of 2022. The 10-year treasury yield climbed to 1.45 per cent on Friday from 1.37 per cent, the week before. The proximity of the taper process and the expectation of US Fed Funds rate to be increased by the end of 2022, brought forth risk-off trades in bond markets. The G-sec yields too rose from 6.14 to 6.19 per cent after the FOMC meeting. As one bond trader described, “When the US sneezes, the rest of the world catches a cold.”

And as if that wasn’t enough, crude prices continued to rise for the third straight week and hit close to three-year highs over global output disruptions, tightening inventories and persisting demand.

Key events back home

Higher crude prices tend to negatively impact bond prices due to the impact they have on fuel inflation and monetary policy decisions. On the domestic front, the Reserve Bank of India did come out with the much awaited G-SAP auction. The Central bank announced a simultaneous purchase and sale of securities which means the net liquidity injection into the market was nil. The Central bank conducted purchases of long tenor bonds maturing in 2028, 2031, and 2035, cumulatively amounting to ₹15,000 crore while selling short-tenor bonds maturing in 2022, also amounting to ₹15,000 crore. Next week too, the RBI will be conducting a similar operation of simultaneous purchase and sale of long and short tenor bonds, respectively. Bond market participants say that although it was a minor dampener, they have come to terms with the fact that the RBI may not be too comfortable with the high amount of liquidity prevailing in the market.

The benchmark yield hit 6.19 per cent last week having risen from the lows of 6.12 per cent seen the week before.

Going forward, the second half borrowing calendar and the monetary policy outcome in early October will be key events. In case the second half borrowing figure comes below ₹5-lakh crore, the benchmark yield could retest the 6.1 per cent level. However, if the borrowing figure is higher than ₹5.5-lakh crore, the 10-year yield could breach the 6.23 per cent level, traders say.

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To purchase and simultaneously sale G-Secs on Sept 23: RBI

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The Reserve Bank of India (RBI) on Monday announced that will conduct open market purchase of Government Securities (G-Secs) under its “G-Sec Acquisition Programme (G-SAP) 2.0” along with a simultaneous sale of G-Secs on September 23.

So far, under G-SAP, the RBI has only conducted standalone G-Sec purchases. But this time round, it is simultaneously conducting sale of G-Secs in view of ample liquidity in the banking system.

RBI will purchase three G-Secs of seven to 14 years tenor, aggregating ₹15,000 crore, under G-SAP 2.0 on September 23.

Simultaneously, the Central bank will sell three short-term G-Sec, all maturing in 2022, aggregating ₹15,000 crore.

In the second quarter so far, the RBI has bought G-Secs aggregating ₹90,000 crore in four G-SAP auctions. After the September 23rd G-SAP auction, it may conduct one more auction for ₹15,000 crore.

Marzban Irani, CIO-Fixed Income, LIC MF, said the simultaneous conduct of G-Sec purchase under G-SAP and sale of G-Sec will be liquidity neutral. However, it may push up short-term yields.

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Benchmark G-Secs can edge up from the current level

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The benchmark government securities yield fell 10 basis points last week to close at 6.155 per cent on Friday and the momentum is expected to continue this week, according to bond traders who are waiting keenly for the consumer price index (CPI) inflation to be released mid-September.

The rally in the G-Secs market came on the back of a combination of factors like the US Fed Chair Jerome Powell’s dovish stance at the Jackson Hole Summit, high domestic liquidity and absence of key triggers in the market.

Period of apprehension

Bond traders, however, had a period of apprehension post the monetary policy announcement earlier this month.

Indications from the RBI that it is beginning to normalise its monetary policy by balancing liquidity at the shorter end through VRRR, along with one of the MPC members expressing reservation about the accomodative stance, made the market nervous. A primary dealer said there were concerns that more members would convert to hawks.

Fed stance soothes nerves

Bond yields continued to rise gradually and reached a peak of 6.255 per cent ahead of the Jackson Hole summit. However, Powell’s dovish stance calmed the nerves with the benchmark yield moving 10 basis points lower last week to close at 6.155 per cent.

Moreover, traders indicate that there was significant foreign portfolio investors’ (FPI) participation in the G-Secs market last week, especially in long tenor papers.

Vijay Sharma, Senior Executive Vice-President, PNB Gilts said the worst of the inflation seems to be over.

“The situation on the fiscal side is also not bad. It looks like the GST collections are also doing really well. These factors should augur well for bonds in the coming times unless we encounter some unexpected events. We can say that the level of 6.25 is now well protected. The momentum being very strong, the market can rally up to 6.1-6.12 per cent also unless some event pierces the rally,” Sharma said.

Siddharth Shah, head of treasury at STCI Primary Dealer said, at 6.25 per cent levels, the market found comfort in going long.

“Furthermore, the Fed Chair’s speech gave some amount of comfort. With the SDL supply seeing reduction, expectations of additional borrowing diminishing on account of upbeat GST collections, replacement demand for bonds on account of G-SAP amidst high market liquidity, conditions became ripe for a rally in bond yields. The benchmark yield is now close to 6.15 per cent and has the potential to go further down to 6.10-6.12 per cent,” Shah said.

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RBI, BFSI News, ET BFSI

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Mumbai: The Reserve Bank of India on Thursday said the next purchase of government securities for an aggregate amount of Rs 20,000 crore under the G-sec Acquisition Programme (G-SAP 2.0) will be conducted on July 22. On June 4, RBI Governor Shaktikanta Das had announced that the central bank will conduct the open market purchase of government securities of Rs 1.2 lakh crore under the G-SAP 2.0 in the second quarter of 2021-22 to support the market.

On July 22, the RBI will purchase four government securities of different maturities through a multi-security auction using the multiple price method.

The central bank said it reserves the right to decide on the quantum of purchase of individual securities, and purchase marginally higher/lower than the aggregate amount due to rounding-off.

The result of the auctions will be announced on the same day, it added.

The first purchase under G-SAP 2.0 aggregating to Rs 20,000 crore was conducted on July 8.

The RBI had conducted an open market purchase of government securities of Rs 1 lakh crore under the G-SAP 1.0 in the first quarter of 2021-22.



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Will buy 4 G-Secs aggregating ₹20,000 crore, says RBI

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Our Bureau The Reserve Bank of India (RBI) on Thursday said it will purchase four Government Securities (G-Secs) aggregating ₹20,000 crore under its G-sec Acquisition Programme (G-SAP 2.0) on July 22 to support the market.

Also read: 10-year G-Sec auction: RBI accepts bids at a higher cut-off yield of 6.10 per cent

RBI will purchase the G-Secs maturing between 2024 and 2029. This will be its second purchase of G-Secs under G-SAP 2.0. The first purchase of five G-Secs, maturing between 2027 and 2033, aggregating ₹20,000 crore was conducted on July 8.

Under G-SAP 2.0, RBI has committed upfront to a specific amount (₹1.20-lakh crore in the second 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.

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Spike in May retail inflation leads to drop in G-Sec prices

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Government Securities (G-Sec) prices dropped on Tuesday as the retail inflation reading for May 2021 spiked above the monetary policy committee’s upper tolerance threshold of 6-6.30 per cent against 4.2 per cent in April.

Given that MPC tracks the retail (consumer price index/ CPI-based) inflation gauge closely, if the reading sustains above the 6 per cent mark for another month or two, it will have to do a hard re-think on its ultra-loose monetary policy to tamp down inflation.

Price of the 10-year G-Sec (coupon rate: 5.85 per cent) came down by about 26 paise to close at ₹98.64 (previous close: ₹98.895), with its yield rising 4 basis points to 6.04 per cent (previous close: 6.00 per cent).

Price and yield of bonds are inversely related and move in opposite directions.

‘Double whammy’

Madan Sabnavis, Chief Economist, CARE Ratings, said, “The CPI inflation number at 6.3 per cent is higher than our expectation of 4.9 per cent and is a kind of double whammy for the economy coming as it does over a sharp increase in WPI (wholesale price index-based inflation) by 12.9 per cent.”

He emphasised that high CPI inflation will be a concern for the Reserve Bank of India (RBI) as it is higher than their estimate of 5 per cent.

“Though the stated policy is that growth is more important, which means that repo rate will not be touched, it will be a nagging issue nevertheless especially if inflation remains in this region. We expect it to be around 5.5-6 per cent in next couple of months,” Sabnavis said.

Price of the G-Sec maturing in 2026 (coupon rate: 5.63 per cent) fell 42 paise to close at ₹99.94 ( ₹100.36), with its yield rising about 10 basis points to 5.64 per cent (5.54 per cent).

Price of the G-Sec maturing in 2035 (coupon rate: 6.64 per cent) too declined 42 paise to close at ₹99.94 (₹100.36), with its yield rising about 4 basis points to 6.64 per cent (6.60 per cent).

Suyash Choudhary, Head – Fixed Income, IDFC AMC, observed that the May CPI print will likely on the margin push up the importance of inflation in the growth versus inflation trade-off for RBI.

“This doesn’t necessarily mean that the central bank will start to respond to this right-away. However, the bond market may step up speculation with respect to the shelf-life for RBI’s current ultra-dovishness.

“This may make the task of dictating yields to the market that much more difficult for the central bank. At any rate, in our base case view, RBI would have started to dial back on its level of intervention at some point and we were budgeting for a gradual rise in yields overtime,” he said.

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RBI buys 70% of 10-year G-Sec to keep yields in check

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The Reserve Bank of India has mopped up about 70 per cent of the benchmark 10-year Government Security (coupon rate: 5.85 per cent) the government has issued since December 1, 2020, thereby keeping G-Sec yields under check and ensuring that banks have enough liquidity to subscribe at the weekly bond auctions.

The current outstanding in the 10-year benchmark G-Sec is ₹1.05-lakh crore. Of this, around 70 per cent is with the RBI. The central bank has accumulated all this via open market operation (purchases), the G-Sec Acquisition Programme and via the secondary market. What this means is the RBI is providing liquidity to banks to encourage them to buy G-Secs at the weekly auctions.

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said: “Due to the Covid-19 related uncertainty, central banks all over the world have intervened in the financial markets. Similarly, the RBI is supporting the huge domestic borrowing. However, once the new 10-year benchmark is issued, the current one will become illiquid due to lower float in the market.”

Irani opined that if the RBI had not intervened, the yield on the current 10-year G-Sec, which closed at 6.0227 per cent on Monday, would have been much higher.

He estimated the coupon rate of the new 10-year benchmark G-Sec, which is likely to be issued by the government either this week or next, to be in the 5.95 to 6.05 per cent band. Ever since the 5.85 per cent G-Sec 2030 was issued in December 2020, it is among the top three traded G-Secs.

Bond market expert K Boovendran observed that at the appropriate time, the RBI will offload the 10-year G-Sec to the banks. “The RBI will not hold them permanently. It is only because of the peculiar situation (triggered by the pandemic) that it Is holding so much of this paper.

“… The RBI is very actively operating in the G-Sec market. That is why the G-Sec yield has been kept under check,” he said.

Boovendran, however, noted that since the paper is not available in the market, there could be more demand for it from market participants. More demand will translate into higher price and lower yield for the paper. Bond yield and price are inversely related and move in opposite directions.

He said that whenever the RBI feels that banks have enough money to subscribe to G-Sec auctions on their own, it will sell the 10-year G-Sec from its portfolio.

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