G-Sec markets reel under short squeeze of 10-year bonds

The Government Securities (G-Sec) markets are currently reeling under short squeeze of 10-year bonds, with yields falling 13 basis points over the past two days as shortsellers scramble for cover.The cash lending rate to borrow securities has dropped to 0.01 percent from 5-6 percent normally.Some dealers suspect that public sector banks are upset with the steep rise in yields after the central bank's Monetary Policy Committee (MPC) decided to pause key rates on February 8. Post the policy, yields went to 7 percent.Banks hold a lot of securities and the instrument made them a lot of money in the last quarter. But after the policy announcement, they were running losses on their bond books. Dealers have shorted the market on the RBI's stance not to cut rates anymore.The G-Sec rally could have a big impact on the public sector undertaking (PSU) banks that hold some of these securities.Watch video for more...