Retail investors chasing yield in the government bond market are increasingly looking beyond the benchmark 10-year G-sec. The reason is simple: Longer-dated sovereign bonds are offering meaningfully higher yields.
Thanks to RBI Retail Direct and online bond platforms, small investors can now easily buy Central government securities (G-secs) and State Development Loans (SDLs or SGSs) across maturities, both in primary auctions and the secondary market.
The attraction is clear. The benchmark 10-year G-sec, 6.94 per cent GS 2036, traded at a weighted average yield of 6.87 per cent on August 21, according to CCIL data. In comparison, 30-year G-secs were trading at around 7.47 per cent. In other words, investors were getting a yield pick-up of about 60 basis points for extending maturity from 10 to 30 years. At times, the gap can widen to around 1 percentage point. Long-term SDLs also offer attractive yields, with 20- and 30-year SDLs trading at around 7.6 per cent during the day.
But before extending maturity in search of a few extra basis points, investors need to ask a more important question: Does the additional yield adequately compensate for the higher interest-rate and price risk that comes with a 20- or 30-year bond?
