Government securities (G-Sec) prices dropped on Friday as the weekly G-Sec auction saw the short-term paper devolve on primary dealers (PDs) and the 10-year paper going unsubscribed.
Price of the benchmark 2030 G-Sec (coupon rate: 5.85 per cent) declined about 12 paise over the previous close, with its yield going up about 2 basis points. This paper was last traded at ₹98.725 (yield: 6.0285 per cent).
Bond yields and price are inversely related and move in opposite directions.
At the auction of the 2023 G-Sec (4.26 per cent), almost 97 per cent of the notified amount of ₹3,000 crore devolved on PDs. PDs are financial intermediaries which support the Government’s market borrowing programme and improve the secondary market liquidity in G-Secs.
Though the RBI received 99 bids aggregating ₹18,782 crore against the notified amount of ₹14,000 crore at the auction of the 10-year G-Sec, it neither accepted any bids nor did it devolve the paper on PDs.
The only paper that got fully subscribed was the 2061 G-Sec (6.76 per cent). In fact, green shoe amount of ₹48.454 crore was accepted over and above the notified amount of ₹9,000 crore.
Hardening yields
Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said: “In last few days, yields have been hardening at short end. With inflation inching upwards, Brent crude up…there are fewer bidders for short papers. Probably due to this the paper got devolved.”
Irani observed that volumes in the existing 10- year benchmark are dropping on expectations of a new benchmark being issued. Probably, the bids were at uncomfortable levels, resulting in RBI not accepting any bids at the auction of this paper.