Prices for government securities (G-Secs) fell on Friday, matching US Treasury yields, as the bond market was shaken by worries that the US Fed might raise rates by 75 basis points to combat persistent inflation even as the price of crude oil rose above $100 per barrel.
The floating rate bond (FRB) maturing in 2028 devolved on Primary Dealers (PDs) to the tune of around 74% of the declared amount (of Rs 4,000 crore), with the remaining three bonds passing without issue. The Reserve Bank of India (RBI) also auctioned four bonds.
The price of the benchmark 10-year G-Sec, which had a 6.54 percent coupon rate, dropped 31 paise to settle at 94 (from 94.31 at the previous closing). This security’s yield increased by roughly 5 basis points to close at 7.4319%.
Bond yields and prices have an inverse relationship and move in opposite directions.
Three G-Secs/GS passed the auction with flying colours: GS 2027 (7.38%), GS 2036 (7.54%), and GS 2051 (6.99%). However, the FRB 2028 developed on PDs because there was less demand for this paper.
The chief investment officer for fixed income of LIC Mutual Fund, Marzban Irani, highlighted that the secondary market liquidity of FRB is not very high. As a result, market participants made larger bids at the auction.
By selling the four aforementioned G-Secs at auction, the government was able to raise $32,000 crore.