InvestorQ : Why did the bond yields move up sharply on 11 May in the bond markets?
Juvina Maggie made post

Why did the bond yields move up sharply on 11 May in the bond markets?

Answer
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Angel dcosta answered.
5 months ago


There were several reasons for the bond yields to harden by over 22 bps in a single day. This is the sharpest spike in yields in a single day since 2017. Here are some key takeaways.

· Sovereign bonds prices tumbled by the most in over 3 years after the government enhanced annual borrowing target by over 50%

· The yield on 10-year bonds climbed 22 basis points from 5.97% to 6.19% on Monday. This was after the borrowing limit was hiked from Rs.7.8 trillion to Rs.12 trillion

· One thing this trend indicates is that global investors could get spooked by this sudden surge in borrowings, which crashed bond prices

· There is also the risk that corporate borrowers will get crowded out or they may end up paying higher interest costs

· One way out is to monetize the deficit with the central banks buying bonds directly from the government. That has not been allowed since 1997

· Fiscal deficit is also expected to shoot through the roof due to the sharply higher borrowings and it could now end up closer to 6%

· Most rating agencies like Moody’s and Fitch have already warned of a likely downgrade of India sovereign debt.