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This is an archive article published on June 21, 2006
Why bond prices are falling
The prices of government securities G-secs or gilts or bonds are going southward, sending their yields returns to three-year high levels in the secondary market for gilts.
June 21, 2006 12:00 AM IST
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2 min read
The prices of government securities G-secs or gilts or bonds are going southward, sending their yields returns to three-year high levels in the secondary market for gilts. The yield on 10-year benchmark 7.59 government stock has hit 7.91
WHY THE JUMP NOW: Overall it indicates the rising interest rate scenario in the country. The RBI is sucking out liquidity8212;which is already tight8212;by floating more G-Secs or bonds in the market in a bid to contain inflation.
WHAT IT MEANS: Rising bond prices mean liquidity in the system is tight and interest rates are set to rise further. It also means the RBI is waging a battle to bring down the money supply in the system.
WHY BONDS ARE ISSUED: G-Secs are issued by the RBI on behalf of the government as part of the latter8217;s fund-raising programme. The net market borrowing programme of the Centre for 2006-07 is budgeted at Rs 1,13,778 crore as against Rs 95,370 crore in the previous year.
WHO TRADES IN THEM: Banks and financial institutions are the big players in the secondary market of such bonds. They meet the SLR statutory liquidity ratio requirements by investing in G-secs.
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