Bond yields continue to rise, pulling prices down

The benchmark bond yield Tuesday rose for the second consecutive day projecting a threat to lower interest rate regime. The gauge increased another seven basis points to close at 6.13 percent pulling prices down.

In the past two trading days, it surged 22 basis points after the Union Budget revealed higher than expected market borrowing plans. This can raise funding cost across the debt market spectrum.

“The yields are rising following unexpected budgeted numbers, which spooked investors,” said a bond dealer working with a large bank.

The Reserve

is anticipated to intervene in the market, an absence of which will trigger rise in federal funding costs.

Finance Minister Nirmala Sitharaman Monday said the government will borrow Rs 80,000 crore in the remaining months this fiscal year.

She estimated gross borrowing at Rs 12.06 lakh crore for the next financial year. Bond dealers on an average estimated the gross borrowing up to Rs 10.5 lakh crore as they cited New Delhi’s higher cash balance with scheduled expenditures being stalled due to a virus outbreak.

The central government will also borrow Rs 80,000 crore additionally this financial year as it is battling with rising economic cost of the pandemic.

Moreover, the projected fiscal deficit or an excess of expenditures over revenues too came higher for the year 2021-22. It is pegged at 6.8 percent versus over 5 percent as estimated.

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