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Indian G-Sec Market: How the Term Structure Reacts to Monetary Policy

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  • Das, Rituparna

Abstract

Against the backdrop of interest rate risk in the fixed income portfolios of the financial institutions in India that arose since the first quarter of the current financial year 2008-09 the influence of monetary policy on the term structure emerged as an important issue for research purposes. In this context the findings in this paper are (i) strongest sensitivity of the term structure at the short end compared to other parts to expected changes in monetary policy, (ii) existence of unutilized arbitraged opportunities in the case of short term securities in absence of stripping, (iii) a mitigating tendency in the fluctuations of Nelson-Siegel-Svensson short rate and the proxy monetary policy rate during the post sample period and (iv) existence of a fear among the market participants about the future liquidity conditions during the last quarter of 2007-08.

Suggested Citation

  • Das, Rituparna, 2009. "Indian G-Sec Market: How the Term Structure Reacts to Monetary Policy," MPRA Paper 16436, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:16436
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    References listed on IDEAS

    as
    1. Bekaert, Geert & Hodrick, Robert J. & Marshall, David A., 1997. "On biases in tests of the expectations hypothesis of the term structure of interest rates," Journal of Financial Economics, Elsevier, vol. 44(3), pages 309-348, June.
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    3. Choudhry, Moorad & Lizzio, Michele, 2004. "Advanced Fixed Income Analysis," Elsevier Monographs, Elsevier, edition 1, number 9780750662635.
    4. Hany S. Guirguis & Christos I. Giannikos, 2007. "A Note on the Effect of Expected Changes in Monetary Policy on Long-Term Interest Rates," Journal of Applied Economics, Taylor & Francis Journals, vol. 10(1), pages 99-114, May.
    5. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
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    More about this item

    Keywords

    term structure; liquidity; monetary policy; Nelson-Siegel-Svensson; Vasicek; federal funds target rate; MIBOR;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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