Gross Borrowing Increase Leads To Bond Prices Falling, Yields Jumping

The gross borrowing programme announced by the government to the tune of Rs 12 lakh crores for FY 2021 saw a sharp spike in bond yields, and a fall in bond prices.

The yield on the 10-year bond jumped 6.19 per cent from 5.98 per cent that it closed on Friday. The sharp jump was on account of the gross borrowing programme of the government, which was originally pegged at Rs 7.8 lakh crores, but, has now been estimated at Rs 12 lakh crore, due to the sharp slowdown in economic activity caused by the Covid 19. This is almost a 54 per cent jump, which saw bond yields spike.

When there is substantial amount of paper, bond prices tend to fall and bond yields tend to go up. They almost always tend to move in the opposite directions.

With the government now announcing additional borrowing, yields jumped, due to more sovereign paper and bond prices correspondingly fell.

Bond prices and yields tend to move in the opposite direction.