Pushed by inflation and other macro economic factors, yield on 10-year government bonds for some months now has been making new highs. In mid November this year, yield on government bonds with 10-year maturity moved a tad higher over 7% mark to 7.06%, a level not seen since September 8, 2016.
And after the government announced the plan to borrow an additional of Rs. 50000 crore through bonds on Wednesday, benchmark yield spiked to 7.326% after opening at 7.25% today. This level was seen last in July 2016. This year the yield rose by more than 120 basis points (1 bps is 1/100th of a percentage point). Meanwhile rupee was also seen trading lower against the dollar at 64.24 at 9:15 am.
A host of factors including recent dip in GST collection for the November month at Rs. Rs. 80,808 crore, tightening local liquidity and fiscal consolidation quality are hurting the sentiments of the Indian bond market.
With this additional borrowing, government is likely to surpass its fiscal deficit target of 3.2% of the GDP for the FY 2018.
Kotak Institutional Equities in view of the current market dynamics of the bond market has revised its estimate for Q4 of FY18 from 6.9-7.1% to 7.15-7.40%.