Conversion Of G-Secs Into Longer-dated Securities Gets Tepid Response

The government, on Monday, got tepid response to the conversion of the 8.27 per cent 2020 government security (G-Sec) into three securities maturing in 2024, 2030 and 2060. It received offers for conversion for only about a third of the total notified amount of ₹30,000 crore.

The best response the government got was for the conversion of 8.27 per cent 2020 G-Sec (maturing on June 09) into 6.18 per cent 2024 G-Sec, with 25 market players collectively offering about 54 per cent of the notified amount of ₹13,000 crore.

The RBI accepted seven offers for the conversion and issued destination securities (6.18 per cent 2024 G-Sec) aggregating ₹5537.764 crore at a price of ₹103.78 (yield: 5.2180 per cent). G-Sec price and yield move in opposite directions.

The response to the conversion of the 8.27 per cent 2020 G-Sec (maturing on June 09) for its conversion into 5.79 per cent 2030 G-Sec was poor, with seven market players collectively offering just about 5 per cent of the notified amount of ₹13,000 crore. The RBI rejected all the offers.

The second best response the government got was for the conversion of 8.27 per cent 2020 G-Sec (maturing on June 09) into 7.19 per cent 2060 G-Sec, with two market players offering about 53 per cent of the notified amount of ₹4,000 crore.

The RBI accepted the two offers for the conversion and issued destination securities aggregating ₹2026.945 crore at a price of ₹105.36 (yield: 6.7982 per cent).

RK Gurumurthy, Senior Vice-President & Head - Treasury, Lakshmi Vilas Bank, said the lacklustre response to the conversion indicates the reluctance of the market players to take duration risk at a time when there is uncertainty on the quantum of additional borrowings.

According to market experts, the conversion/ switch of G-Secs comes at a time when the government is set to borrow ₹4.20-lakh crore more in FY21 as the pandemic-related expenses for the health and social sectors will mount. It will ease short-term redemption pressures due to maturity of the G-Secs.