Bargain Hunting At The Long-End

The volume in the government securities market has fallen sharply to barely Rs 450 - Rs 500 crore on a daily basis from almost Rs 2,000 - Rs 3,000 crore. Though in the first few days of the new fortnight it has increased a bit. However, the trades that have taken place are concentrated in the medium and short term securities.

The prices of the long term securities have fallen sharply because of low demand. The price for 10.29 per cent 2009 paper, for example, has fallen by more than 7 paise during the April 13, 2000 to August 8 period. For 12.29 per cent 2010 and for 12.40 per cent 2013 papers, the fall has been more than 7 paise during this period. The yields of the 10.29 per cent 2009 and 12.29 per cent 2010 paper have increased by more than 100 basis points while for the 12.40 2013 paper the rise was more than 90 basis points. The argument is whether it will be more profitable to invest in the long term securities at these low levels.

 

People have different views in this context. One argument is that the prices in the long-term securities are close to bottoming out. On the other hand the short-term securities are more volatile and more sensitive to the volatility in the interbank call money market and forex market. At this juncture if one tries to look at the long term perspective, it is less riskier and more profitable to invest in the long-term securities. The supporters of this argument think that the high call money rate and the volatility in the rupee is not going to stay for long. The movement in the forex market is a correction influenced mainly by the trade gap of the economy. The high call rate is due to the high cut-off rate at the repo auctions which the Reserve Bank of India is using as a measure to mop up the excess liquidity from the market.

All these are very short-term measures and movements.