The G Sec Yield Movement

7/30/2019 The G Sec Yield Movement

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The G Sec Yield Movement

January March April

Date Yield Date Yield Date Yield

1/1/2013 7.99 3/1/2013 7.91 4/2/2013 7.99

1/2/2013 7.99 3/4/2013 7.89 4/3/2013 7.96

1/3/2013 7.97 3/5/2013 7.87 4/4/2013 7.96

1/4/2013 7.93 3/6/2013 7.86 4/5/2013 7.93

1/7/2013 7.90 3/7/2013 7.86 4/8/2013 7.91

1/8/2013 7.91 3/8/2013 7.84 4/9/2013 7.88

1/9/2013 7.90 3/11/2013 7.84 4/10/2013 7.90

1/10/2013 7.88 3/12/2013 7.89 4/12/2013 7.87

1/11/2013 7.87 3/13/2013 7.90 4/15/2013 7.83

1/14/2013 7.80 3/14/2013 7.87 4/16/2013 7.82

1/15/2013 7.83 3/15/2013 7.86 4/17/2013 7.80

1/16/2013 7.88 3/18/2013 7.88 4/18/2013 7.78

1/17/2013 7.84 3/19/2013 7.90 4/22/2013 7.75

1/18/2013 7.86 3/20/2013 7.92 4/23/2013 7.73

1/21/2013 7.86 3/21/2013 7.93 4/25/2013 7.77

1/22/2013 7.85 3/22/2013 7.96 4/26/2013 7.74

1/23/2013 7.86 3/25/2013 7.95 4/29/2013 7.76

1/24/2013 7.89 3/26/2013 7.99 4/30/2013 7.73

1/28/2013 7.86 3/28/2013 7.95

1/29/2013 7.85

1/30/2013 7.89

1/31/2013 7.91

The above three tables indicate the G Sec yield movement across three different months. The Region shaded

in light grey indicates the period post the announcement of Inflation Numbers for the corresponding earlier

months. Most of the rally in the G Sec has happened post the announcement of Inflation numbers as the RBI

policy announcement comes post this either at the end of month or beginning of the corresponding month.

Yield Movement

7.67.7

7.87.9

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The below stated chart highlights specific traits G Sec Yield movement for different months:

G Sec Yield Movement(January)

Lowest/Highest Date Yield

Highest 1-Jan-13 7.99

Lowest 14-Jan-13 7.80

Reduction in Yield 0.19

Percentage Difference over the highest yield( Of 7.99) 2.38

Duration of this yield movement 13 Days

Ratio of movement of Inflation to G Sec Yield 1/3.63

The actual Inflation Numbers for the month of December 12 came around January 15, 2013.

G Sec Yield Movement post the announcement of Inflation Numbers:

G Sec Yield Movement(January)


Lowest 1/15/2013 7.83

Highest 1/31/2013 7.91

Increase in Yield 0.08


Rate %

6

8

Nov-12Dec-12

Jan-13

Feb-13

7.24

7.316.62 6.84

Rate %

WPI Inflation

Date Rate %

Feb-13 6.84

Jan-13 6.62

Dec-12 7.31

Nov-12 7.24


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If we look at the WPI Inflation Chart above, there was increase in Inflation numbers for the month of

December by 0.07%. Correspondingly, when we look at the G Sec Yield movement post January 15(when

the December Inflation numbers were announced), the Yield has actually increased from 7.83 on 15 Jan

13 to 7.91 by 31 Jan 13.

This Yield movement has come over a period of 16 days and the actual yield has increased by 8 bps. TheRBI however announced a 25 basis points cut in Repo rate on 29 Jan from 8 to 7.75%.

The next set of Inflation numbers for the month of January, which were announced by 15 Feb 13, saw a

major reduction in numbers from 7.71 to 6.62. However the RBI Policy announcement of a rate cut only

came by March 19, where another 25 bps cut was announced on repo rate side bringing it to 7.50%

The below stated table depicts the G Sec yield movement for the month of March

G Sec Yield Movement(March)


Lowest 3/8/2013 7.839

Highest 3/26/2013 7.990

Duration of this Yield Movement 18 Days

Reduction in Yield 0.151


10 Year G Sec Yield as on 15 March 2013 7.86

The WPI numbers for the month of Feb rose to 6.84 from the 6.62 figure of Jan, an increase of 22 basis

points. Correspondingly the G Sec yield since then has risen from 7.86 to 7.99 by 31 March 2013, 13 bps

increase in 16 days.

Surprisingly, for the month of March, the WPI numbers came at a 40 month low of 5.96 from the 6.84

figure of Feb 13. This announcement too came on 15 April 13. This is a whooping 88 basis points drop in

WPI numbers.

When we look at the ratio of Increase/Decrease in WPI numbers to the G Sec Yield movement, for themonth of Jan,

December Inflation rose from 7.24 to 7.31, 7 basis point increase and the G sec Yield for the period 15

Jan to 31 Jan had risen from 7.83 to 7.91, 8 basis points increase.

The period from 15 to 31 Jan is only focused more here as the RBI Policy announcement usually comes

around this time and the market factors in most of the yield movement by this period.


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The Ratio of Inflation to G Sec yield in this case is roughly 7:8 or 1.75:2

The next rate cut in RBI policy announcement came on 19 March 13. For the month of March,

Feb WPI numbers came in at 6.84, 22 basis point increase from 6.62% of Jan 13 and the

corresponding G Sec yield movement has shown an increase from 7.86 as on 15 March 13 to 7.99on 26 March 13. An increase of 13 basis points in 11 days.

The ratio in this case is between WPI and G sec yield is 2:1.

In the above two situations, no objective correlation between WPI numbers and G Sec Yield can be

conclusively drawn. But to larger extent WPI numbers hold the key in terms expectation on RBI

Policy announcements and the vast proportion of G Sec rally happens in between this said period.

In other words, before the policy announcements come in, the markets factor in the vast majority

of G Sec Yield movements.

Hence does the March WPI numbers coming in at 5.96% hold for the G Sec marker rally? Let us look at

the 10 Year G Sec Yield rally for the month of April:

Date Yield

4/15/2013 7.83

4/16/2013 7.82

4/17/2013 7.80

4/18/2013 7.78

4/22/2013 7.75

4/23/2013 7.73

4/25/2013 7.77

4/26/2013 7.74

4/29/2013 7.76

4/30/2013 7.73

7.68

7.70

7.72

7.747.76

7.78

7.80

7.82

7.84

4/15/2013

4/16/2013

4/17/2013

4/18/2013

4/19/2013

4/20/2013

4/21/2013

4/22/2013

4/23/2013

4/24/2013

4/25/2013

4/26/2013

4/27/2013

4/28/2013

4/29/2013

4/30/2013

Yield


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Similarly, the 2/3rd

and 1/3rd

price range in this case would be 100.56 and 101.27 respectively.

Let us now analyze and note some of the major fluctuations that have happened during this period:

There has been a major uptrend in the G Sec price since Dec 15 and this rally has stayed ontill Jan 15. In a matter of one month, the 10 Year G Sec price has risen from nearly 99.80 to

over 102.20. By mid December, the Nov Inflation data would have shown up which had

marked a decline in the WPI number from 7.33(of Oct 12) to 7.24.

Also, since mid December, the expectations of a rate cut from the RBI were increasing. Mostof this rally is a result of the markets factoring in the same.

Finally 25 bps cut in Repo was announced on 29 Jan post which a minor uptrend in this rallycould be seen.

By Jan 15, the 10 Year G Sec price was above the 80% price range for this said tenor andtraded at over 102.20. This showed a minor correction by Jan end nearing the 1/3

rdprice

range and trading at roughly 101.40.

By Feb 20, the G Sec price reached the 90% price range and traded at 102.26. From end of March till mid April, the G Sec price moved from the 50% mark of nearly 100.9

to nearly 101.73 by 9 April 2013.

The March WPI numbers came by April 15 at 5.96% and the price from thereon has movedfrom the 70% range to an all time high of 102.71 by April 30, 2013.

The RBI Policy announcement due on 03 May 2013 may hold the key now. Though it is safe

to say that even in this scenario the markets have to a large extent factored in the policy

announcement, any further sweetener from the RBI may have the potential to prolong this

rally a tad further.

There is already news from certain corners about the possibility of RBI lowering the CRR

from 4% to 3.75% on May 03. Even the CAD has eased to 4.4% of GDP for the march

quarter on the back of higher exports and easing gold imports. Hence any potential move by

the RBI on the CRR front cannot be completely ruled out. Having said the same, it may also

be equally premature to press the trigger on happening of this CRR cut.


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Conclusion:

102.40 is likely to be a critical price to watch for. If the 10 year G Sec price goes below this,

investors may have to promptly act to contain further decline in their G Sec holdings. The

Market though vastly seems to have factored in the 25 bps rate cut on repo side projected

for 03 May. Any sweetener in this regard as said previously is likely to prolong this rally a

little further.

The G Sec Yield Movement

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