Easing G-Sec yields: SDL average 10-year yield falls to 9-week low

The 10-year benchmark bond 6.10%-2031 yields eased almost 6 basis points since last week and closed at 6.199% on Wednesday, as against 6.2539% on August 27.

By Manish M Suvarna

The average yields on 10-year state development loans (SDL) fell to a nine-week low on August 31, after yields on government securities (G-Sec) moderated. Lower borrowing by states against what was indicated in the calendar also helped yields on SDLs become lower. On a weekly basis, the average 10-year borrowing cost on SDL has moderated by 7 basis points to 6.90%.


“Markets have been buoyant post comments from Fed Chair Jerome Powell at the Jackson Hole symposium. Yields on SDLs have softened as they continue to provide attractive spreads, especially on the 10-year curve, as against PSU bonds,” said Anand Nevatia, fund manager, Trust Mutual Fund.

Since last week, yields on benchmark government securities cooled off due to a dovish speech by Powell, improved demand for securities at the weekly bond auction on August 27 and absence of devolvement in past few auctions.

The 10-year benchmark bond 6.10%-2031 yields eased almost 6 basis points since last week and closed at 6.199% on Wednesday, as against 6.2539% on August 27.

Meanwhile, reductions in US Treasury yields have also boosted the appetite of traders. Traders who were on the sidelines became active due to positive cues. Lower US Treasury yields usually prompt investors to move to emerging markets in search of higher yields on debt securities. In the last one week, the yields on 10-year US Treasury notes have moderated almost 5 basis points.

Traders also got comfort from the comment of the central bank’s governor that they don’t want to give any sudden shock or surprises to the markets.

Additionally, the devolvement has stopped in the last few weeks due to improved demand from investors and good FPI inflows in August. The market saw the last devolvement on July 30 and the auction was cancelled on August 6. The other auctions were subscribed fully at almost market levels.

So far in 2021-22, the total devolvement to primary dealers is Rs 76,000 crore, almost 14% of total borrowings. The highest devolvement so far this year has been in the 5-year G-Sec, followed by a 10-year bond, according to a CARE Ratings report.

FPIs have purchased debt securities worth $1.635 billion in August, data on National Securities Depository showed.

Market participants said lower borrowing by the states than the indicative calendar also softened yields on SDL in the previous auction. The borrowing so far in FY22 between April 8 and August 31, was 13% lower than the indicative borrowing calendar for this period. “Lower-than-expected borrowings in the current quarter from states also aided the fall in yields,” Nevatia said.

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