Bond yields fall after government debt switch announcement
Premium- The 10 year G-sec fell 7 basis points to 6.68% at the close of trade from the previous close of 6.75%
MUMBAI : Indian government bond yields fell on Monday after the government switched ₹1.19 lakh crore of government securities and oil bonds with the Reserve Bank of India.
The 10 year G-sec fell 7 basis points to 6.68% at the close of trade from the previous close of 6.75%.
The transaction involved buying back securities maturing in fiscal year 2022-23, fiscal year 2023-24 and fiscal year 2024-25 from the Reserve Bank and issuing fresh securities for equivalent market value, to make the transaction cash neutral, said RBI in a statement.
Of the total amount getting switched, ₹63,650 crore of bonds are maturing next fiscal which will lower the government’s redemption pressure to that extent.
In exchange, the government issued bonds maturing between 2028 and 2035 to RBI.
“The Government of India has been undertaking conversion or switch operations with market participants as well as with the Reserve Bank with the objective of smoothening the liability profile as well as for market development," RBI said in a statement
Bond dealers and economists expect that the government will announce higher bond sales in its upcoming budget to help the economy recover from the pandemic.
“Following the conversion/switch of G-sec with the RBI, we now peg the gross dated borrowing of the government at Rs. 12.3 trillion in FY2023," said Aditi Nayyar, chief economist, ICRA.
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A bond dealer with a private sector bank said, “Post the switch, the market is more prepared about how much the government borrowing will be for next year. The switch reduces redemption pressure next year and brings down gross borrowing by ₹62,000cr. Market was expecting around ₹60000 crore switch sometime in March.We expect gross borrowing to be in the range of ₹12.5-12.75 lakh core."
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