April 20, 2021
They fear that a rise in interest rates could adversely impact prices of long-tenor securities
Market participants, especially banks, in the Government Securities (G-Sec) market, seem to be turning averse to the conversion of short-tenor securitiesinto long-tenor securities, due to fears that a rise in interest rates could adversely impact prices of the latter.
They are avoiding duration risk (the longer the maturity of a bond, the more sensitive it is to changes in interest rates), going by the results of the switch/ conversion auction of 10 G-Secs (for a notified amount of ₹2,000 crore each) conducted by the Reserve Bank of India on Monday.
Are floating-rate investment options a better bet?
Satya Sontanam
BL Research Bureau |
Updated on
April 17, 2021
Returns move up or down in sync with the market
A phone call between two friends leads to a conversation about the interest rates offered by various debt options and whether they stay fixed or vary during the tenure of the instrument.
Karthik: Hey, have you noticed that in the last couple of months the markets have rallied like there is no tomorrow?
Akhila: Oh, yeah. And after much thinking, I finally booked profits on some of my equity holdings last week.
Karthik: Where are you planning to park these funds now?
G-SAP 1.0: Has RBI embarked on the path of quantitative easing?
April 13, 2021
×
While it is similar to QE of advanced economies, the central bank’s programme is short-term in nature, restricted to G-secs and is not intended to stimulate the economy
The RBI Governor unveiling the secondary market G-sec acquisition programme – G-SAP – in the recent monetary policy had many experts pointing out that this move is very similar to the quantitative easing programmes initiated by central banks of advanced economies.
But while the programme is styled like QE of advanced economies, the RBI has not gone that path entirely. It’s QE is very short-term in nature, is restricted to G-secs and the intention is not to stimulate the economy. There are also many reasons why QE is not an option for India.
MUMBAI: The rupee fell for the sixth straight session and settled 32 paise down at 75.05 (provisional) against the US dollar on Monday amid a lacklustre trend in the domestic equities ahead of the release of key macro-economic data. Moreover, rising crude oil prices, foreign fund outflows and spiking Covid-19 cases weighed on the domestic currency. At the interbank forex market, the local unit opened at 74.97 against the greenback and traded in the range of 74.78 to 75.14 during the day. The rupee finally ended at 75.05 against the American currency, registering a fall of 32 paise over its previous close. On Friday, the rupee had settled at 74.73 a dollar.