Government in talks to assess bond market sentiment

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Mumbai | Published: February 22, 2018 4:34:42 AM

The 10-year benchmark yield touched a fresh two-year high of 7.71% on Wednesday

bond market, Rajiv Kumar, Niti Aayog, Reserve Bank of India, US Treasury yields, Ministry of finance, bond auctionsThe sources said that officials from the ministry wished to understand the reasons responsible for the negative trend in the bond market.

The continuing rise in yields in the bond market is clearly a trigger for deeper study, if not for concern. Bond market participants told FE, on condition of anonymity, that they have been contacted by officials from the finance ministry to better understand the prevailing sentiment. This could not be independently confirmed. The 10-year benchmark yield touched a fresh two-year high of 7.71% on Wednesday, having risen four basis points (bps) from Tuesday’s close. The sources said that officials from the ministry wished to understand the reasons responsible for the negative trend in the bond market. “Ministry of finance officials have been calling market participants. They were trying to take stock of the situation as to why the market is behaving the way it is right now and what can be done to improve the bond market sentiment,” a foreign banker pointed out.

A primary dealer said that the debt management office of the ministry was in touch with them a few days back to understand why the yield situation continued to worsen despite the cancellation of bond auctions. “They asked us why the yields are rising despite the cancellation of auctions of long-tenor paper. We told them until the state-owned banks start buying, the sentiment might continue to remain negative,” the dealer said. A section of the market is of the view that the government may take over the market borrowing function from the Reserve Bank of India. Niti Aayog vice-chairman Rajiv Kumar is reported to have made a strong case to set up an independent debt management office, recently.

At present, the RBI acts as the merchant banker to the government and handles the market borrowing. Lack of buying by state-owned banks and surging US Treasury yields have kept yields at high levels in recent times. This hardening of yields could indeed be a cause of concern for the government, as its borrowing costs could go up when auctions commence in April. Experts say that if the shift of market borrowing responsibility moves to the government, they may consider issuing sovereign bonds in the overseas market.

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