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  • RBI permits lending and borrowing of G-Secs

    RBI permits lending and borrowing of G-Secs

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    In a move that will add depth and liquidity to the government securities (G-Secs) market, the RBI has permitted permit lending and borrowing of G-Secs. 

    This move comes even as India is set to be included in the globally tracked JP Morgan’s Government Bond Index-Emerging Markets (GBI-EM) index, starting June 28, 2024.

    The RBI said G-Secs issued by the Central government excluding Treasury Bills will be eligible for lending/borrowing under a Government Security Lending (GSL) transaction.

    Securities obtained under a repo transaction, including through Reserve Bank’s Liquidity Adjustment Facility, or borrowed under another GSL transaction will also be eligible to be lent under a GSL transaction.

    Collateral placement

    Further, G-Secs issued by the Central Government (including Treasury Bills) and the State Governments will be eligible for placing as collateral under a GSL transaction.

    In addition, Securities obtained under a repo transaction, including through Reserve Bank’s Liquidity Adjustment Facility, or borrowed under another GSL transaction will also be eligible to be placed as collateral under a GSL transaction.

    GSL transactions may be contracted using any mutually agreed trading process/platform, including but not limited to, bilateral or multilateral, quote driven or order driven process, anonymous or otherwise, RBI said in its “Reserve Bank of India (Government Securities Lending) Directions, 2023”.

    RBI Governor Shaktikanta Das, in his February 2023 “Statement on Developmental and Regulatory Policies” had said that RBI proposes to permit lending and borrowing of Government securities which will augment the existing market for ‘special repos’. 

    “A well-functioning market for securities lending and borrowing will add depth and liquidity to the Government securities market, aiding efficient price discovery.

    “… The system is expected to facilitate wider participation in the securities lending market by providing investors an avenue to deploy idle securities and enhance portfolio returns,” Das then said.

    The minimum tenor of a GSL transaction will be one day and the maximum tenor shall be the maximum period prescribed to cover short sales. All GSL transactions will settle on a Delivery versus Delivery basis.

    The central bank said SLR (statutory liquidity ratio) eligible securities borrowed under a GSL transaction will be eligible to be reckoned for SLR by the borrower.

    Accordingly, such securities lent under a GSL transaction will not be eligible to be reckoned for SLR by the lender.

    Further, SLR eligible securities received as collateral under a GSL transaction will be eligible to be reckoned for SLR by the lender.

    Accordingly, such securities placed as collateral under a GSL transaction will not be eligible to be reckoned for SLR by the borrower.

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  • G-Secs perk up, shrugging off higher June inflation reading

    G-Secs perk up, shrugging off higher June inflation reading

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    The Government Securities (G-Secs) market perked up on Thursday, shrugging off the higher domestic retail inflation print for June even as it tracked the decline in US Treasury yields.

    In the domestic bond market, yield of the 10-year benchmark paper (7.26 per cent 2033 GS) thawed about 4 basis points to close at 7.07 per cent (previous close: 7.11 per cent), with its price rising about 30 paise to close at Rs 101.2775 (Rs 100.9825).

    Bond yields and prices are inversely co-related and move in opposite directions.

    “US inflation reading for June at 3 per cent seems to be moderating towards the Fed’s target rate of 2 per cent.…So, US 10-year Treasury has rallied. Its yield is back to 3.86 per cent level from 4.06 per cent level earlier. Our market mirrored the rally in US Treasuries.

    “Our inflation is not too high. We are still in the comfort zone of 4-6 per cent. At this point of time, our debt market is taking cues from the US market. That is why it rallied along with the US market,” Ajay Manglunia, MD & Head, Investment Grade Group, JM Financial.

    Retail inflation up

    India’s retail inflation print for June came in higher at 4.81 per cent against 4.31 per cent in May 2023 on spike in vegetable prices

    Venkatakrishnan Srinivasan, Founder and Managing Partner, Rockfort Fincap LLP, emphasised that the trigger for the rebound in G-Secs was the rally in US Treasuries, which came on the back of a thaw in US retail inflation.

    “The market was just looking for a positive trigger. Now, that trigger has come in the form of softer retail inflation in the US, which in turn is giving hopes the Fed may not hike rates,” he said.

    Venkatakrishnan expects the 10-year G-Sec to trade in the 7.05 per cent to 7.15 per cent range over the next one week.

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