Since April-June (Q1) 2010-11, Middle Office (MO), Budget Division, Department of Economic Affairs, Ministry of Finance, Government of India is bringing-out a Quarterly Report on Debt Management on regular basis. The current report pertains to the quarter July-September 2014 (Q 2 FY 2014-15).

During Q2 of Fiscal Year 2014-15 (FY15), the Government issued dated securities worth ₹ 1,54,000 crore taking the gross borrowings for HY1 of FY 15 to ₹ 3,52,000 crore (58.7 per cent of BE), as compared to ₹ 3,44,000 crore (59.4 per cent of BE) in H1 of FY 14. Net market borrowing (including repurchases) during the first half of FY 15 at ₹ 2,76,887 crore or 56.0 per cent of BE was higher than ₹ 2,69,265 or 55.6 per cent of BE in the previous year. The government repurchase securities worth ₹ 18,805 crore during September 2014 to prematurely redeem the Government Stocks by utilizing surplus cash balances. Auctions were reduced by ₹ 16,000 during Q2 of FY 15 from the proposed auction calendar for H1 FY15 in March 2014, after review of Central Government’s cash position. During the quarter, emphasis on re-issues was continued with a view to build up adequate volumes under existing securities imparting greater liquidity in the secondary market. One new benchmark security of 10 year maturity (8.40 per cent GS 2024) was issued during the quarter on July 28, 2014. The amount issued under new securities constituted ₹ 32,000 or 20.8 per cent of total issuances during Q2 of FY 15. The weighted average maturity (WAM) of dated securities issued during Q2 of FY15 at 14.70 years was higher than 14.13 years for dated securities issued in Q1 of FY15. The weighted average yield of issuance during Q2 of FY15 also declined to 8.67 per cent from 8.92 per cent in Q1 of FY15, reflecting moderation in yields during the quarter. Liquidity conditions in the economy remained comfortable during the quarter, barring period of advance tax outflows, with the liquidity deficit, as reflected by net borrowings from RBI, remaining near the Reserve Bank’s stated comfort zone. The cash position of the Government during Q2 of FY15 was comfortable during the quarter barring a few occasions, when it took recourse to WMA.

The Public Debt (excluding liabilities under the ‘Public Account’) of the Central Government provisionally increased by 2.7 per cent in Q2 of FY 15 on Q-o-Q basis as compared with an increase of 3.7 per cent in the previous quarter (Q1 of FY15). Internal debt constituted 91.7 per cent of public debt as at end-September 2014, while marketable securities accounted for 83.9 per cent of public debt. About 28.4 per cent of outstanding stock has a residual maturity of up to 5 years, which implies that over the next five years, on an average, 5.68 per cent of outstanding stock needs to be rolled over every year. Thus, the rollover risk in the debt portfolio continues to be low. The implementation of budgeted buy back/ switches in coming quarters is expected to reduce roll over risk further.

In the secondary market, bond yields in Q2 FY 15 opened steady but remained cautious. After initial hardening in yields, G-Securities, traded in the range of 8.40-8.80 per cent during Q2 of FY 15. Market worries relating to higher fiscal deficit in the first two months of the financial year drove the yields marginally higher to quarter high in mid-July 2014. Subsequently, the re-assurance by Finance Minister regarding fiscal prudence and RBI notification regarding enhancing the debt investment limit in G-sec by FIIs led to fall in yields. Further, other factors such as reduction in Government borrowing plan, positive Q1 FY 15 GDP numbers, weaker than expected US nonfarm payroll data, declining crude prices touching a 14 month low in first week of September 2014, moderation in CPI inflation, buyback of September 2014, led to softening of the yield and the 10 year benchmark yield closed at 8.51 per cent as on September 30, 2014. This gradual decline in yield was halted occasionally on account of factors, such as some changes proposed by RBI for the G-sec auctions, geopolitical news coming out of Iraq and Ukraine, data and Fed announcements from US etc. Overall bonds yields moderated across the curve as against previous quarter and the yield curve flattened at the longer end of the curve. Trading volumes, on an outright basis, were lower by 23.17 per cent over the previous quarter, due to lower trading on account of Central government dated securities. The annualised outright turnover ratio for Central government dated securities for Q2 of FY15 decreased to 3.90 from 5.30 during the previous quarter.

Detailed Quarterly Report on Debt Management can be seen at the Finance Ministry’s website: finmin.nic.in.

Public debt management adjustments reduced auction sizes and used repurchases to manage cash and liquidity conditions. The quarterly report details issuance and repurchase operations for July-September 2014, including a strategy of re issues to build secondary market liquidity, emergence of one new 10 year benchmark, reductions in auctions based on the Government's cash position, and targeted repurchases to utilize surplus cash. It describes the debt composition and maturity profile-highlighting internal debt and marketable securities dominance, a limited share of short residual maturities and consequently low rollover risk-and notes comfortable liquidity conditions with occasional recourse to Ways and Means Advances.