G-sec traded volume drops as banks keep off

Banks across the board have been shying away from the government securities market since the beginning of the fourth quarter this month. As a result, traded volumes are falling by the day.

From the highs of Rs 6,000-7,000 crore seen during the same period last year, bond market volumes today are currently hovering in the range of Rs 800-1,000 crore.

This includes trades in government securities and treasury bills. The volume of trading in gilts alone is around Rs 400-600 crore, possibly one of the lowest in recent times.

Banks have become very cautious about taking risk and investing in government securities at this juncture.

"Most of them have already utilised the option provided by the Reserve Bank of India to transfer a part of their statutory liquidity ration (SLR) securities from the trading category to the held-to-maturity portfolio. Therefore, banks will not be able to cope with trading losses especially in the fourth quarter if interest rates become too volatile," said a banker.

Securities in the held-to-maturity portfolio, as the name suggests, are held till maturity and not traded.

Life Insurance Corporation is one of the major buyers but it is not a trader. Therefore, its presence is hardly a trigger, said a dealer.

Also, primary dealers, though active, cannot influence the trend because volumes are very low.

Meantime, the yield on the benchmark 7.38 per cent 2015 has gradually been going up. It now stands at 6.75 per cent as against 6.70 per cent a week back.

Another reason for the lack of interest in gilts is that the interest rate outlook is hazy. Players are waiting for the next meeting of the US Federal Reserve's Open Market Committee and the congregation of the G-7 countries scheduled in early February.

While the Fed panel will set the tone for the movement of the global interest rates, the G-7 conclave is likely to focus on Asian currencies.

The refrain could be that Asian currencies have to rise to ease the burden on European countries where the handling of the US deficit goes.