The cut-off yield of the 10-year government security, at 6.78% was 24 bps up from the last auction of the security held on 14 January 2022. Similarly, the yield of the 40-year G-Sec at 7.33% was higher by 8 basis points. One basis point is 0.01 percentage point.
Moreover, ₹3,027 crore or 23% of the notified amount of the 10-year security was devolved on primary dealers, the sixth successive auction where the notified amount was not fully subscribed, clearly showing the tussle between the market’s quest for higher yields and the RBI’s reluctance to give more which is likely to give way to higher yields. The 10-year bond closed at 6.75% on Friday.
“Following the devolvement, both long-end and short-end yields have inched up significantly. Between January 14 -27 2022, India’s 10-year yield has shot up by 17 bps, 182-days T-Bill rose by 18 bps and 91- and 364-days T-Bills have inched up by 14 bps each… the 10-year yield will remain nervous until the budget,” said Madan Sabnavis, chief economist, Bank of Baroda .
Bond traders said together with the government gross borrowing number, India’s actions on getting into the European bond index and the RBI’s stance even as its peers have shifted to inflation taming mode will be key to monitor.
“If the government manages to keep the gross borrowing number close to ₹12 lakh crore, it will be a big relief. Also, if there is any progress on India’s representation on Euroclear it will help the demand. But most crucial is what is RBI’s role going forward we have kept real rates negative for more than two years and we no longer have the luxury of lower crude or benign US treasuries,” said Naveen Singh, head-fixed income at ICICI Securities, pointing towards the US Fed’s pivot towards higher rates and increasing prices of oil, the largest imported commodity for India.
Sabnavis expects the interest cost for the government to be elevated in FY23 at around ₹9.3 lakh crore against ₹8.1 crore, as envisaged in the estimate for the budget of FY22.
