Bond yields could rise further this week as state loans and gilts worth some Rs 56,500 crore hit the market. Ananth Narayan, professor-finance, SPJIMR, told FE the amount is an all-time high for a week and that the market is nervous. “Besides LIC, one would expect banks that are sitting on excess liquidity to take up some of the supply. However, the sizeable duration risk could deter banks,” he observed.
Narayan believes that with the fiscal deficit across the Centre and states expected to widen significantly, Reserve Bank of India will have to step in, at some stage, with bond purchases to arrest a sharp rise in yields.
