RBI may step in to keep G-Sec yields from rising

RBI may step in to keep G-Sec yields from rising

The Reserve Bank of India (RBI) may announce an open market operation (OMO) to purchase government securities (G-Secs) or reduce the reverse repo rate further to keep the G-Sec yields from possibly spiking on Monday due the extra borrowing announced by the Government on Friday, say market experts.

They expect G-Sec yields to jump as the government, in an after market hours announcement on Friday, said it will borrow Rs 4.20 lakh crore more in FY21 on account of the COVID-19 pandemic. This will take the total government borrowing in FY21 to Rs 12 lakh crore.

Marzban Irani, CIO-Fixed Income, LIC Mutual Funds, observed that the extra borrowing is going to have a negative impact on the debt market as higher than expected supply of G-Sec papers will result in higher yields across G-Sec papers. Corporates yields are expected to follow the rising G-Sec yields.

“Yields should inch upwards since additional supply of G-Secs is difficult to absorb (around Rs.30,000 crores on weekly basis).

“The new 10 year benchmark (issued on Friday and carrying 5.79 per cent coupon rate) may chase 6 per cent (yield) and beyond, if the Government or the Reserve Bank of India (RBI) fail to come up with positive comments,” he said.