Arbitrageurs tap into G-Sec yield anomaly

Arbitrage is the process of buying and selling an asset in two different exchanges or locations. This creates an opportunity for an arbitrageurs to take advantage of price discrepancy. Hence the arbitrageur buys a asset in one market and sells the same asset in another market at a higher price, thereby enabling investors to profit. This make risk free profit.
Anomaly is the way to generate abnormal profits from active investing. RBI’s buying program has led to the price mismatch in similar maturity bonds where yields for 3 similar bonds changed. This led to the price mismatch in bonds and the spread between these bonds were as high as 49 basis points.
Off the run bonds – Bonds which are issued before the recently issued bonds.
On the run bonds – Bonds that are latest issued bonds.
Off the run bonds usually are traded less after a new latest bond is issued by RBI. Hence the liquidity in off the run bonds also decreases and due to lack of trading and liquidity the price doesnt change often hence there comes the opportunity for arbitrageur to exploit this difference between the illiquid off the run bond and the current on the run bond.