10-year yield on a high government debt plan

Mumbai: in the government bond market have started rising again as bond dealers fear an increase in government borrowing to finance the stimulus packages and other expenses due to the spreading pandemic. As a result of the extra outgo, they feel the actual borrowing is likely to overshoot the planned one, according to the calendar announced on Tuesday, market players said.

On Friday, the first day of trading in the bond market since the borrowing calendar was announced, the benchmark 10-year yield shot up to 6.32% from 6.14% on Tuesday and closed at 6.30%. Since bond yields and their prices are inversely related, the prices of government fell on the first day of trading in the new fiscal. As the benchmark is one of the main determinants for lending rates by banks, rising yields are not very comforting for both lenders and businesses.

On Tuesday, the government said that it would borrow Rs 7.8 lakh crore through gilt auctions in fiscal 2021, and an additional Rs 1.4 lakh crore through treasury bills. Of the total borrowing through bonds, 62.6% — or about Rs 4.9 lakh — is planned in the first half. All these plans are in line with the borrowing trend in the past few years, bond dealers said.

In comparison to the government ’s Rs 4.9-lakh-crore borrowing, in the next three months, the government will also repay gilts worth nearly Rs 1.4 lakh crore, RBI data showed. This should keep the rising yield under check, at least till June, bond dealers said.