No trade in 10-year benchmark bond

Other government bonds hog the limelight, with the 8.28% 2027 security recording the highest trading volume

With the most liquid government security, the 10-year benchmark bond, being in shut period (there was no trade in the bond) on Monday, ahead of its interest payment, other government bonds hogged the limelight, with the 8.28 per cent 2027 security recording the highest trading volume.

Tracking the appreciation in the rupee, government bond yields fell. The yield on the 8.28 per cent 2027 government bond closed at 9.09 per cent, compared with its previous close of 9.11 per cent. Though the Reserve Bank of India (RBI) conducted open market operation (OMO) purchase of government securities, this didn’t see much success — the amount infused was Rs 6,156.74 crore, against the notified amount of Rs 8,000 crore.

“A day before the interest payment, there is no trade. Since the 10-year benchmark 7.16 per cent bond isn’t being traded today (Monday), other securities are being traded. Tomorrow, the 10-year bond will again be traded,” said Anoop Verma, vice-president (treasury), Development Credit Bank. On Thursday, the yield on the 7.16 per cent 10-year government bond had closed at 9.02 per cent. On Friday, the market was shut on account of Muharram.

Earlier, RBI had decided to purchase the 7.17 per cent 2015, 7.59 per cent 2016, 7.83 per cent 2018 and 8.20 per cent 2025 securities through Monday’s OMO. “RBI should do OMOs for securities that are more liquid. Only then will the purpose of liquidity infusion be achieved. For securities that aren’t liquid, the market is not willing to sell at a loss,” said a treasury official of a public sector bank.

RBI had decided to conduct an OMO to infuse liquidity and comfort the government bond market, which was recording auctions for a notified amount of Rs 15,000 crore every week this month.

“Due to the July 15 episode, many securities have been put to held-to-maturity (HTM). When securities go to the HTM bracket, there is apprehension it may be sold at a loss, which none of the banks want,” said S Srinivasaraghavan, head of treasury at Dhanlaxmi Bank. Srinivasaraghavan estimates the yield on the 10-year benchmark government bond would stand at 8.8-9.2 per cent till the mid-quarter review of monetary policy on December 18.

On July 15, the central bank had taken various liquidity-tightening steps to arrest the rupee’s volatility. These steps had resulted in a sharp rise in government bond yields.