The government is likely to cancel FY2021's last weekly securities auction on the account of rising expectations about the overall direct tax collection exceeding the revised target. This move can soften Government Security (G-Sec) yields in the run-up to the close of the fourth quarter and the financial year.

Market players assume that the last weekly G-Sec auction for ₹20,000 crores may be canceled as the advance tax collections have turned positive at the end of the fourth installment and the government also has cash balances with the Reserve Bank of India. Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, observed reports stating that the government weighing whether it needs money from the last weekly auction of FY2021. He told that the government is having balances with the RBI. They may have canceled tomorrow’s and next Friday’s auction. Given the upcoming FY end, cancellation of the last auction could help face to face valuation of the banks’ treasury portfolio. The yield on the 10-year benchmark G-Sec (coupon rate: 5.85%) crept up 2 BPS on Thursday to close at 6.2023, with its price falling about 12 paise to ₹97.45 over the preceding close. The secondary G-Sec market yields went up in sync with the US Treasury yields. The yield differential between the 10-year benchmark G-Sec and the 15-year G-Sec (coupon rate: 6.22%) is now approximately 63 BPS.

According to the bond market dealers, this differential shows that the RBI is intervening in the market through special open market operations (OMOs), to keep the 10-year benchmark yield from rising. The yield on the 10-year benchmark G-Sec has surged about 30 BPS, with its price falling by about ₹2 since January-end.