Bonds in trouble because rates remain high
FM's proposal to increase the fiscal deficit, to indirectly indicate that small savings rates are maintained at a high level and less incentives for life insurers to buy government securities would keep long-term government returns at a high level. This, in turn, would leave fewer options for RBI to reduce rates in the short term, bond players said. However, given the limited options that the finance minister had to maneuver with the Budget numbers, they feel that the government has aimed to boost growth through an acceptable level of fiscal expansion and finance it through increased savings collection. small, thus avoiding displacement, said VP-Investment, Star Union Dai-ichi Life Insurance.
Being a Saturday, with the bond market closed for negotiation, dealers will wait for the trading session on Monday to assess the total impact of the budget proposals.
Bond market actors also feel that with the economic recovery financed through fiscal expansion, they can put some pressure on interest rates, which in turn is likely to be contained by an accommodative policy by the RBI and the resumption of the purchase of Indian bonds by the FPI due to the extension of less ease of withholding taxes.