MUMBAI: With the Reserve Bank of India (RBI) expected to follow the US Federal Reserve’s lead in cutting interest rates, the outlook for Government Securities (G-Secs) is increasingly favourable, according to experts.
“Recent decisions by central banks around the world, including the Bank of England (BoE), European Central Bank (ECB), Reserve Bank of Australia (RBA), and Bank of Canada )BoC), to either cut rates or signal potential easing further support this trend,” a bond market expert told businessbenchmark.news.
Following a notable dip in G-Sec yields – where the benchmark 10-year G-Sec yield fell from 7.01 per cent at the end of June to 6.76 per cent by late September – banks are positioned to capitalise on substantial treasury income.
Bonds price set to rise
As yields continue to soften, bond prices are likely to rise, creating an environment ripe for banks holding G-Secs to realise significant gains.
The inverse relationship between yields and prices suggests that further rate cuts by the RBI could drive yields down even more, enhancing the profitability of existing G-Sec portfolios.
Recent reports indicate that banks have already begun booking profits from their treasury holdings, with the price of the benchmark 10-year G-Sec climbing to Rs102.35.
Lucrative opportunity
As the third quarter unfolds, the gains realised from these securities could contribute positively to banks’ financial results, marking a lucrative opportunity in a shifting interest rate landscape.
With global central banks adjusting their monetary policies in response to economic conditions, banks that have strategically invested in G-Secs are set to benefit handsomely from rising bond prices, making treasury operations a key focus for Q3 and beyond.
