G-sec yields spurt on high govt borrowings

The government today announced a fertiliser subsidy through the issue of bonds to the tune of Rs 95,000 crore. This, along with the issue of oil bonds, is likely to push up the government borrowing by Rs 40,000-50,000 crore for the current financial year, said a dealer of a public sector bank.

 

Besides the increased borrowing programme, another factor that has pushed up the liquidity requirement is the continuous buying of dollars by RBI to prevent a sharp depreciation of the rupee against the dollar. This, in turn, is sucking out the rupee liquidity from the market, said dealers.

Prices of government securities fell by 20-70 paise across maturities. The benchmark paper for the long-term maturity (8.33 per cent 2036) witnessed yields going up to 8.45 per cent. Dealers said yields had gone up across maturities by 3-7 basis points.

The bearish sentiment in the market was aided by the statement of the RBI governor on Monday. The governor commented that the Indian fiscal deficit was one of the highest in the world. The higher fiscal deficit will have an inflationary impact, which, in turn, may force RBI to tighten monetary measures even if they are not very effective, said a dealer.

Meanwhile, dealers said while the current liquidity situation is comfortable, the market has already discounted tight liquidity conditions in the long term. After three tranches of CRR hike and no fresh supply of foreign exchange inflow, the liquidity is under pressure.

This got reflected in the overnight interest rate swap (OIS) market, where across maturities