RBI by significantly using its muscle power in the government bond market has sidelined the liquidity providers in the market. Bond traders have almost stopped trading as weekly heavy supply of bonds from the government and states and RBI protecting the yield curve have left them with no appetite to make markets.
The result of traders staying away from bond markets is illiquidity and when benchmark bonds are illiquid, everything else from corporate bond yields to loan pricing is distorted. Bubbles are created and when they burst, repercussions are severe, as seen from many past experiences.
Since March 2020, weekly average traded volume of government securities (including SDLs and T-bills) has come down significantly as evident from below given table.
Week | Average g-sec traded volume(billion) |
2nd-6th March | 767.05 |
9th-13th March | 679.77 |
16th-20th March | 450.52 |
23rd -27th March | 173.33 |
30th March-3rd Apr | 227.28 |
6th-10th Apr | 180.29 |
13th-17th Apr | 216.34 |
20th-24th Apr | 484.47 |
27th-30th Apr | 324.37 |
4th-8th May | 491.51 |
11th-15th May | 469.27 |
18th-22nd May | 399.64 |
25th-29th May | 319.09 |
1st-5th June | 267.43 |
8th-12th June | 291.05 |
15th-19th June | 318.76 |
22th-26th June | 274.09 |
29th Jun-3rd July | 425.84 |
6th-10th July | 503.06 |
13th-17th July | 371.76 |
20th-24th July | 304.25 |
27th-31th July | 328.58 |
3rd-7th August | 280.15 |
10th-14th August | 303.82 |
17th-21st August | 289.43 |
24th-28th August | 311.7 |
31st Aug-4th Sep | 419.9 |
7th-11th Sep | 356.77 |
14th-18th Sep | 317.98 |
21st-25th Sep | 208.89 |
28th Sep-1st Oct | 300.77 |
5th-9th Oct | 379.19 |
12th-16th Oct | 321.66 |
19th-23rd Oct | 373.51 |
26th-29th Oct | 401.2 |
2nd-6th Nov | 286.51 |
9th-13th Nov | 230.79 |
17th-20th Nov | 261.86 |
23rd-27th Nov | 285.95 |
1st-4th Dec | 289.93 |
7th-11th Dec | 279.68 |
14th-18th Dec | 200.01 |
21st-24th Dec | 212.56 |
28th Dec-1st Jan | 180.83 |
Government bonds, SDL and OIS yield movements.
During the week, 5.85% 2030 yield stood unchanged at 5.88%, 5.77% 2030 yield declined by 3 bps to 5.90% while 5.79% 2030 bond yield came down 9 bps to 5.89%. 6.45% 2029 bond yield decreased by 4 bps to 5.95%. 5-year benchmark bond, 5.22% 2025, yield declined by 3 bps to 5.04%. Long term paper 7.16% 2050 yield lost 3 bps to 6.54%.
The spread of 10-year bond over 5-year bond (5.22% 2025) declined to 85 bps from 91 bps from previous week. On the other hand, 15-year benchmark over 10-year benchmark spread rose to 37 bps from 31 bps. In the same line, 30-year benchmark over 10-year benchmark spread rose to 66 bps from 59 bps.
In the SDL auction conducted last week, average 10-year SDL yield rose to 6.60% from 6.57% last week. Consequently, spread with G-sec benchmark stood unchanged at 64 bps.
On weekly basis, 1-year OIS yield declined by 2 bps to 3.70% while 5-year OIS yield decreased by 4 bps to 4.61%.
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