Variables Influencing Movement of G-Sec. Yields: An Empirical Approach

Abstract

On a day-to-day basis, market participants look at many other variables as well e.g. crude prices, commodity prices, GDP growth rates, etc. However, the end implication of these factors has been captured in the statistical study done in this paper. For Example, higher crude or commodity price would result in higher inflation, which has been studied here. A higher GDP growth rate would give a larger scope of RBI to hike rates (in case inflation is high); we have studied the co-relation with Repo and Reverse Repo Rates. Higher investment by FIIs in Indian equities may result in higher rupee liquidity; we have studied the impact of system liquidity on yield levels. At a given point of time, one factor may be overbearing over others e.g. if inflation is too high or if system liquidity too much in surplus it may overshadow other parameters.

Keywords: Government Security, WPI, GDP, Repo Rate, Reverse Repo Rate

JEL Classification: C10, E50, G10