Slowing G-Sec Yields: 10-Year SDL Average Yield Drops To 9-Week Low


Yields on the 6.10% -2031 10-year benchmark bond fell almost 6 basis points from last week and closed at 6.199% on Wednesday, down from 6.2539% on August 27.

By Manish M Suvarna

Average 10-year government development loan (SDL) yields fell to a nine-week low on August 31, after yields on government securities (G-Sec) moderated. The decline in government borrowing from what was on the schedule also contributed to the decline in SDL yields. On a weekly basis, the average cost of 10-year borrowing on SDL moderated 7 basis points to 6.90%.

“Markets were buoyant following comments from Fed Chairman Jerome Powell at the Jackson Hole Symposium. SDL yields have weakened as they continue to provide attractive spreads, especially on the 10-year curve, against PSU bonds, ”said Anand Nevatia, Fund Manager, Trust Mutual Fund.

Since last week, benchmark government yields have cooled due to a conciliatory speech from Powell, improved demand for securities in the weekly August 27 bond auction and the lack of decentralization during the last auctions.

Yields on the 6.10% -2031 10-year benchmark bond fell almost 6 basis points from last week and closed at 6.199% on Wednesday, down from 6.2539% on August 27.

Meanwhile, cuts in US Treasury yields have also boosted the appetite of traders. Traders who were on the sidelines have become active due to positive signs. Lower yields on the US Treasury generally prompt investors to look to emerging markets in search of higher yields on debt securities. Over the past week, yields on 10-year US Treasuries have moderated by nearly 5 basis points.

Traders were also reassured by the central bank governor’s comment that they do not want to give the markets a sudden shock or surprise.

Additionally, deconcentration has come to a halt in recent weeks due to improving investor demand and good REIT inflows in August. The market experienced the last deconcentration on July 30 and the auction was canceled on August 6. The other auctions were fully subscribed at levels close to the market.

So far in 2021-2022, the total devolution to primary traders is Rs 76,000 crore, or nearly 14% of total borrowings. According to a CARE Ratings report, the strongest decentralization to date this year has been in the 5-year G-Sec, followed by a 10-year bond.

REITs bought debt securities for $ 1.635 billion in August, according to data from the National Securities Depository.

Market participants said the decline in government borrowing from the indicative timeframe also weakened SDL yields in the previous auction. Borrowing so far in FY22 between April 8 and August 31 was 13% below the indicative borrowing schedule for that period. “Lower than expected government borrowing in the current quarter also contributed to lower yields,” said Nevatia.

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