G-secs rally on latest liquidity assurance

Mumbai: The RBI’s decision to keep interest rates unchanged and maintain enough liquidity in the banking system led to a rally in the

government

securities (

G-secs

) market on Thursday with the benchmark 10-year yield softening by about 13 basis points (100bps = 1 percentage point) to close at 6.75%. Earlier this week, the benchmark yield had touched a high of 6.95% after the finance minister in her Budget last week said that the government would borrow nearly Rs 15 lakh crore from the market next fiscal.

The government’s Budget proposal led to fears among market players about a demand-supply mismatch in the G-secs market with the higher-than-expected supply weighing on yields. However, on Thursday, the RBI also said that there would be some additional ways of enhancing demand for G-secs, like higher

Voluntary Retention Route

(VRR) limit for

foreign

players, market players said.

“Keeping aside the possibility of any fresh supply shock (either in the form of very high state bond supply or through re-auctioning of earlier cancelled auction), drastic spike in global fixed income yield and crude price, till the fiscal end the benchmark yield is likely to hover within the range of 6.60-6.80%. Long tenure G-sec is likely to move in the range of 7.20-7.40%,” said Star Union Dai-ichi Life Insurance VP (investment) Ram Kamal Samanta.


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