G-sec yields have risen by 150bps to 250bps across the curve even as the government borrowing program is seen as rising on the back of higher fuel subsidies. This is naturally an issue for the government as borrowing costs increase on higher yields in the market. RBI at times have had to undertake bond purchases, cancel auctions, do operation twists and use liquidity tools to keep yields in check. However, this has not prevented yields from rising and has only hurt investors who are holding bonds purchased at prices much higher than where they are now.
Similarly, RBI has been selling USDINR to prevent the INR from depreciating, but the INR is falling to record lows. Hence the question is what the purpose of these interventions is when they are proven ineffective. RBI is undertaking these interventions to make its presence felt in times of volatility, but the cost of these interventions is high with investors taking wrong signals. The amount of intervention and fall in prices is given here to show the ineffectiveness.
During FY22, RBI has purchased Government of India bonds worth Rs 2245.75 billion through G-SAP and special OMO.
6.10% GS 2031 price variation | |
Date | Price |
12-Jul-21 | 99.9 |
10-Jun-22 | 90.71 |
Fall in price | -9.20% |
Date | USD/INR(Rs) |
08-Mar-22 | 76.88 |
26-Apr-22 | 76.56 |
10-Jun-22 | 78.18 |
Government bonds, SDL and OIS yield movements
Last week, 10-year benchmark 6.54% 2032 paper yield rose by 6 bps to 7.52%. The 5-year benchmark bond, 6.79% 2027 yield rose by 3 bps to 7.30%. 6.64% 2035 yield increased by 5 bps to 7.67%. Long-term paper, 6.99% 2051 yield increased by 5 bps to 7.82%.
The spread of 10-year bond over 5-year bond rose to 22 bps from 19 bps in the previous week. The 15-year benchmark over 10-year benchmark spread came down to 14 bps from 17 bps while the 30-year benchmark over 10-year benchmark spread declined to 30 bps from 31 bps on a weekly basis.
10-year SDL auction cut-off rose to 7.89% from 7.83% in previous week. However, spread decreased to 38 bps from 42 bps as benchmark yield rose to 7.51% from 7.41% during same period.
On a weekly basis, 1-year OIS yield rose by 1 bp to 6.24% while the 5-year OIS yield rose by 11 bps to 7.15%.
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