Bond yields rise as govt. expands borrowing plan
Intraday yield up 27 bps in sharpest surge since Feb. 2017
- The yield on the most-traded 10-year government bond spiked 20 bps (basis points) after the government announced it would increase its market borrowings by more than ₹4 lakh crore for FY21.
- The yield stood at 6.17% at the close of trading hours on Monday, up 20 bps from the previous close. Intraday, yield rose 27 bps, the sharpest intraday surge since February 2017.
- “The estimated gross market borrowing in the financial year 2020-21 will be ₹12 lakh crore in the place of ₹7.80 lakh crore as per BE (budgeted estimates) for 2020-21. The above revision in borrowings has been necessitated on account of the COVID-19 pandemic,” the Finance Ministry said in a statement on Friday.
- As per the new revised FY21 borrowing calendar, the central government will now borrow ₹6 lakh crore in the first half of the current financial year against the ₹4.88 lakh crore budgeted initially.
- The nationwide economic lockdown imposed by the government to curb the spread of the pandemic had resulted in a lower tax revenue for the government.
- Dealers said till such time the Reserve Bank of India announces open market operations (OMO) to purchase government securities to address the supply glut, there would be pressure on yields.
- The Reserve Bank has estimated to have done secondary OMOs to the tune of ₹750 billion [₹75,000 crore] already.
- Nonetheless, unless there are more assertive actions by the RBI on funding of the government’s market loans, there will remain an overhang on the G-sec market, with more pressure on the longer end of the curve.