Yield on the 10-year benchmark Government Security (G-Sec) hit a 20-month high due to concerns on the possibility of higher Government borrowing and the inflationary impact of rising crude oil prices.
The 10-year G-Sec (coupon rate: 6.10 per cent) opened three basis points higher at 6.49 per cent yield (about 24 basis points lower in price terms) against the previous close of 6.46 per cent.
Towards the end of the trading session, this paper recovered somewhat vis-a-vis the morning level, closing at 6.4774 per cent yield or a price of ₹97.3425.
Bond yield and price are inversely correlated and move in opposite directions.
Referring to the upcoming weekly auction of this paper, Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said the central bank may have to announce an open market operation (OMO) purchase of G-Secs to ensure this auction sails through smoothly.
Madan Sabnavis, Chief Economist, CARE Ratings, said bond yields have tended to move in the upward direction due to two factors — inflation, which has become generalised, and the possibility of higher borrowing programme.
“So far, the government has maintained that there will be no excess borrowing, but some developments do justify a higher borrowing programme,” he said.
In this regard, Sabnavis referred to the additional cash expenditure of ₹3-lakh crore granted by the Parliament and scepticism on the disinvestment target being attained in the next three months.
Further, though GST, corporate tax and excise collections have been very buoyant in last three months, they may not be sustained in the last quarter to compensate for this higher expenditure.