This is not undervalued. Price of Gsec keeps on changing based on current prevalent interest rates. I’ll try to explain this in simple terms.
This Gsec is paying 6.76%, but what is market expecting currently as interest for a 35 year govt bond?
We can look at recent govt auctions to get some idea.
Last month RBI auctioned a gsec maturing in 2055 and it ended up at yield of around 7.3%
So now, if Gsec with similar maturity is available at around 7.3% why would someone by this gsec at 100 rs and be satisfied with 6.7% interest?
So prices of this Gsec will have to fall below 100 till buyer gets yield of 7.3-7.4% and hence price is trading below 100.
If tomorrow interest rates falls, then price will rise till actual yield matches with current rate.
In effect, prices of Gsec (and all bonds, but gsec is highly liquid) continues to fall or rise above face value to ensure that calculated yield matches current interest rates.
Yes, what you are seeing in chart is precisely that, bond prices changing continuously to align with current market rate
Hope this helps.