Bond yield declining about 3 basis points to 6.0192 per cent
The Reserve Bank of India paid about 38 paise more to purchase the 10-year Government Security (G-Sec) under the third tranche of the G-Sec Acquisition Programme 1.0 in a bid to keep bond yields on a tight leash.
The move to buy the aforementioned security at a higher price had the desired effect as it closed about 18 paise higher at ₹98.79 than the previous close, with the yield declining about 3 basis points to 6.0192 per cent.
Bond yield and price are inversely related and move in opposite directions.
Under G-SAP 1.0, the central has committed upfront to a specific amount (₹1-lakh crore in the first 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.
Of the six G-Secs and State development loans of 12 States the central bank intended to buy aggregating ₹40,000 crore, it invested about 67 per cent of the amount (or ₹26,779 crore) in buying the 10-year paper.
Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said: “the 10-year G-Sec is the most widely-traded security. It is the signalling rate. Most of the borrowing is in the belly (10-year to 15-year) of the curve.
“In the last two days, prices had fallen based on the upcoming Fed event and profit booking. So probably it was bought 38 paise up.”
He underscored that most of the float is with RBI in 10-year benchmark paper.
“Probably RBI gave an exit to investors holding this paper so that those they can participate in auctions going ahead and support the borrowing,” Irani said.