Budget 2021 has heated up the bond market
Published On: Thursday, February 4, 2021 | By: Team KnowMyStock
The bond market got a negative surprise on Budget day (1st Feb 2021) when the government projected its gross borrowing numbers for the next financial year at Rs 12.05 trillion, much higher than the expected Rs 10.5 trillion. To make the matter worse, the government said it would borrow an additional Rs 80,000 crore in the current financial year, too. “The Rs 80,000 crore extra borrowing for this year is especially a bolt from the blue for the bond market,” said an expert. “This is because the government has been consistently running very high cash balances lately, revenues have picked up dramatically, and even though spending has gone up, it hasn’t been tracking anywhere close to what is required to yield the revised Budget numbers.”
After rising 22 basis points through Monday and Tuesday, the yield on the 10-year government bond dropped by 4 basis points on Wednesday to 6.08 per cent, in anticipation of some measures from the Reserve Bank of India (RBI) in the monetary policy review, which is currently underway. The outcome of the review will be announced on Friday.
One of the options before RBI could be to announce an open market operations (OMO) calendar for purchasing government bonds. Even as it has conducted OMOs of such a nature in the past, the central bank has refrained from announcing a schedule, preferring to maintain an element of surprise. Another option to keep the yields under check is to increase the banks’ held-to-maturity limit for securities.
Tags: Bond market RBI Budget 2021
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