After witnessing huge crash in equity markets most of the investors are busy in celebrating rally in equities even without bothering the condition of other asset class. Yesterday GOI came with an unexpected announcement that in this fiscal year they will borrow 52,800 crores from the debt market in the second half of the year which is approximate 32% extra than the figure which was envisaged in the budget of this year. With this move govt will be raising its borrowing programme for this fiscal year which will reach upto 4.7 trillion which is again highest ever.
As per the statistics disclosed during budget the scheduled net borrowing for this second half was 1.56 trillion but now this amount will be 2.198 trillion (2.2 trillion). It’s difficult to say that what would be the intention of govt behind this move but one factor (among many others) can be considered that they want to push interest rates.
As per the statistics disclosed during budget the scheduled net borrowing for this second half was 1.56 trillion but now this amount will be 2.198 trillion (2.2 trillion). It’s difficult to say that what would be the intention of govt behind this move but one factor (among many others) can be considered that they want to push interest rates.
Domestic debt market reacted sharply on the announcement and benchmark 10 – year paper yield reaches to 8.44% (10 bps high) on Thursday. The announcement of increased borrowing of 52,800 crs was against expectation of market of maximum 20,000 crs. The way G Sec yields are moving, it may be a start of a new dawn because as the new papers will hit market the yields will really start moving up and it won’t be a magic if yields reaches till 8.7% level in coming weeks. This increase in yields will definitely make an adverse impact on the bond valuation which will be a major challenge for investors.
