InvestorQ : Why are bond yields in India going higher even after the RBI has cut the interest rates by 75 basis points?
Riya Dwivedi made post

Why are bond yields in India going higher even after the RBI has cut the interest rates by 75 basis points?

Answer
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rhea Babu answered.
5 months ago


It has largely to do with the government borrowing program. The yields have gone up largely due to the assumption that the government will have to borrow heavily at a higher cost to make up for the lost output and incomes of people due to the lockdown. The first borrowing tranche worth Rs.19,000 crore was complete on 09 April but happened at a steep yield of 6.53%. This is nearly 200 basis points higher than the repo rate which indicates the clear gaps in transmission when even the most blue chip borrower in the economy (the central government) is forced to borrow at such a steep premium. Bond yields may be elevated through the year due to the heavy credit demand from government. The government borrowed Rs.6,000 crore out of this for 40 years at a yield of 7.19%. That means rates are quite high at the long end. Even at the short end of 2 years, the government borrowed at over 5.2%.