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Rising bond yields may hit banks with MTM losses

By Religare

Rising bond yields following huge sell-off in the month of March has landed most of the banks on a dry pitch as they face huge mark-to-market (MTM) losses on their government bond portfolio in the ongoing quarter.

Bond yields have been rising due to RBI's monetary policy review on March 19 where it said that there was limited room for further monetary easing. Indian Debt market also remained under pressure as a key ally of UPA government withdrew its support during the same day, leaving investors worried about reforms process in the economy.


As per dealers, banks had invested heavily in bonds before the monetary policy as yields were heading southwards. The 10-year benchmark bond yield had touched a low of 7.80 per cent. However, with RBI's disappointing monetary policy, yields took a U-turn and closed at 7.99 per cent on Tuesday, wiping out all the gains of 2013. The yield on the 10-year benchmark stood at 8.05 per cent on December 31.

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