The long end of the G-sec curve spread with the 10-year G-sec fell sharply by 5-8 bps on weekly basis. The short end of the curve spread with 10-year G-sec rose by 2-5 bps on weekly basis (Table 1). Spreads at the long end had risen post RBI October Policy and on worries of higher government borrowing as tax revenue target can undershoot due to glitches in GST collection and cut in excise duty for oil. However given strong system liquidity and expectations of repo rate to be held low for an extended period, markets are buying into higher spreads.
Off the run bond spreads largely fell by 2-5 bps on a weekly basis. Table 2.
SDL bonds spreads with 10-year G-sec rose by 6 bps, On 10th October 2017 auction, spread between SDL bonds with 10-year G-sec came in at 82 bps. On 26th September 2017 auction, spread between SDL bonds with 10-year G-sec came in at 76 bps. Chart 1