27 Nov 2023

G-sec yield curve continues to exhibit inversion

Negative system liquidity has caused the g-sec yield curve to remain inverted. Market awaits the outcomes of next RBI MPC meeting which will guide further g-sec yield movement.

author dp
Team INRBonds
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The current shape of the domestic g-sec yield curve continues to remain inverted. As of 24th Nov, 3-yr, 5-yr, 7-yr and 10-yr g-sec yield stood at 7.26%, 7.30%, 7.29%, 7.27% respectively. The cause of inversion can be attributed to deficit system liquidity which stood at Rs 1575 billion of deficit. Now the market eyes on outcomes of forthcoming MPC meetings. It is expected that the status quo on policy repo is likely to continue. RBI MPC may also provide guidance for previously announced OMO sale of g-secs.

Government bonds, SDL and OIS yield movements

During the past week, there were several notable changes in bond yields:

The yield for the 10-year benchmark 7.18% 2033 bond yield rose by 5 bps to 7.27%. Similarly, the 7.26% 2033 bond yield increased by 5 bps to 7.31%. The 7.06% 2028 bond's yield gained 5 basis points to 7.26%. In the same line, the long-term paper, represented by the 7.25% 2063 bond, its yield increased by 7 bps to 7.48%.

The spread between the 10-year and 5-year bonds stood flat at 1 basis point as compared to the previous week. The spread between the 15-year benchmark and the 10-year benchmark stood flat at 12 bps as compared to11 bps. Additionally, the spread between the 30-year benchmark and the 10-year benchmark rose to 21 bps from 19 bps as compared to the previous week.

In terms of the 10-year SDL auction, the average cutoff yield declined to 7.67% as compared to 7.70%, while the spread increased to 40 basis points from 32 basis points.

Lastly, in the Overnight Indexed Swap (OIS) rates, the 1-year OIS yield rose by 8 bps to 6.92%, while the 5-year OIS yield increased by 16 bps to 6.60%.

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