10-year Benchmark G-sec yield flirts with 8% mark for the first time in 3 years, witnesses steepest hardening in recent times

The recent Monetary Policy Review saw Reserve Bank of India’s first rate hike in more than four years, a change in stance that saw 10 year benchmark G-sec yield almost touching the 8% mark for the first time in 3 years (since June 2015). The 10-year benchmark G-sec acts as a fair indicator of the investors’ sentiment of the Indian fixed income market.  The benchmark yield has seen the steepest per year increase in yield in recent times with ~180 bps hardening since the trough of 6.18% achieved in November 2016.

Domestic debt market has been primarily dominated by Government securities. In FY17-18, the amount outstanding in Government securities reached Rs. 53.2 trillion representing a sizeable market share of ~65% in sovereign debt market (constituting G-secs, T-bills and State Development Loans) and ~45% in the entire Indian fixed income market. With an average ~30% share of secondary market trades in the Indian G-sec market, the ‘on-the-run’ 10-year benchmark G-sec represents the most liquid maturity segment of the G-Sec market.

The NIFTY 10-year Benchmark G-Sec Index captures the price change and accrued interest of on-the-run 10-year G-Sec. Additionally, NIFTY 10-year Benchmark G-Sec (Clean Price) Index captures only the price change of ‘on-the-run’ 10-year G-Sec.

Exhibit 1: Performance of NIFTY 10-year Benchmark G-sec index during various phases

1*Data ended June 7, 2018

#Returns reported during Phase 3 are absolute returns for the 5 month period from August 2008 to December 2008.

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