RBI’s short-term paper is vested; G-Sec 10 years unsubscribed

Prices of government securities (G-Sec) fell on Friday as the weekly G-Sec auction saw short-term paper move to primary traders (PD) and 10-year paper unsubscribe.

The price of the 2030 G-Sec benchmark index (coupon rate: 5.85%) fell by about 12 paise from the previous close, with its yield increasing by about 2 basis points. This paper was last traded at 98.725 (yield: 6.0285 percent).

Bond yields and prices are inversely related and move in opposite directions.

In the 2023 G-Sec auction (4.26%), nearly 97% of the notified amount of 3,000 crore went to PDs. PDs are financial intermediaries that support the government’s market borrowing program and improve secondary market liquidity in G-Secs.

Although the RBI received 99 bids totaling 18,782 crore against the notified amount of ₹ 14,000 crore at the 10-year G-Sec auction, it did not accept any bids or forward the document on PD.

The only newspaper that was fully subscribed was 2061 G-Sec (6.76 percent). In fact, a green shoe amount of 48,454 crore was accepted in addition to the notified amount of 9,000 crore.

Hardening yields

Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said: “In recent days, yields have hardened in the short term. With inflation rising, Brent crude rising… there are fewer bidders for short papers. It was probably because of this that the paper was transferred.

Irani observed that the volumes of the existing 10-year benchmark are down from expectations of issuance of a new benchmark. Likely, the bids were at uncomfortable levels, which caused RBI not to accept any bids at the auction of this paper.

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