No takers for long-time gilt as yield volatility reins

Mumbai, Nov 18 | Updated: Nov 19 2005, 06:19am hrs
Hardening interest rates and the lack of buyers for long-term bonds have triggered a uni-directional gilts market. There are many players who want to sell but no takers for these stocks. There are a number of players who are waiting to offload their long dated stocks the moment a buyer is available.

On an average daily volume of Rs 1,200 crore, the share of long dated securities is estimated at around Rs 550 crore. Also a clear segregation has also been created in the money market, with the average duration of public sector banks G-Sec portfolio in the available for sale (AFS) category at 4.5-5 years, while in the case of their private sector counterparts, the average G-Sec portfolio duration is 2-2.5 years.

Consider this: The yields on government securities have risen nearly 120 basis points to 7.10% in November 2005, from 5.80% prevailing at end-2003. Hence, in the present situation, when none of the players prefer to have a trading position in the long tenure securities, the state-run banks are having a tough time in offloading the long tenure papers.

Moreover, this shift in cycle has prompted most public sector banks to transfer a portion of their long-term investments to the Held to Maturity category, resulting in a reduction in profits.Private banks, on the other hand, being new entrants in the market, already hold more liquid, or short-term investments. Foreign banks, too, have turned into traders, from being investors earlier, and prefer to make money by buying handful of securities and exiting the portfolio on the same day.

Market players opine that the debt market lacks a view-based trading position, with a handful of players dominating the trading arena and the rest of the players following their footsteps.