Inflation and lockdown worries weigh on G-secs; yields rise 10 bps
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The move came on a day when the Reserve Bank of India conducted its first government securities acquisition programme (G-SAP), a mechanism to keep rising yields under check.
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MUMBAI: The benchmark bond yield surged Thursday pulling prices down as an unexpected wholesale price rise coupled with an estimated economic cost of localised lockdown weighed on investor sentiment.
The move came on a day when the Reserve Bank of India conducted its first government securities acquisition programme (G-SAP), a mechanism to keep rising yields under check. The central bank bought Rs 25,000 crore worth of sovereign papers including the benchmark one.
RBI is in uncharted territory with quantitative easing
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Without saying so, the Reserve Bank of India (RBI) has embarked on quantitative easing (QE). It has given it a fancy new name: Government Securities Acquisition Programme (GSAP), which has a promise of becoming meme-worthy if pronounced as G-zap. What exactly is RBI hoping to zap or obliterate? Well, it wants you to perish the thought of the yield on government securities going above, say, 6.25%. It wants to put a ceiling on market participants’ expectations. This might be harder than imagined. You can’t put a bound on thinkable thought, nor can you tame market sentiment, even if you are RBI. It’s like the case of a class teacher telling students, “Don’t think of a pink elephant. Bond market players will be determined to test this ceiling, and RBI will need to keep coming back to zap their greedy intentions. For now, RBI says that the GSAP promise is to buy ₹1 trillion worth of