Economics · Debt Market & Banking Interlinkages

Consider the following statements regarding the interlinkage between the debt market and the banking sector: Statement 1: The Modified Duration of a bank's investment portfolio determines the extent of the impact that a change in market yields will have on the bank's economic value of equity. Banks with a significant portion of their long-term Government Securities (G-Secs) in the Available for Sale (AFS) category face higher volatility in their Tier 1 capital if the yield curve shifts upward. Statement 2: Open Market Operations (OMOs) are conducted by the RBI to manage durable liquidity in the system and influence the long-term yields of government securities. By buying bonds in an OMO purchase, the RBI increases demand, leading to a rise in bond prices and a corresponding fall in yields. Statement 3: Operation Twist involves the simultaneous purchase of long-term government securities and the sale of short-term securities by the central bank. The objective is to flatten the yield curve by pushing long-term yields down while keeping short-term rates stable. Which of the statements given above are correct?