This Article is From May 13, 2020

Bond Yields Spike Briefly On PM's Announcement Of Economic Package

The benchmark 10-year bond yield opened the day 12 bps higher at 6.28 per cent, but retreated quickly to trade flat by 10:15 am

Bond Yields Spike Briefly On PM's Announcement Of Economic Package

The bond markets spiked briefly in morning trade following the economic package announcement.

India's benchmark bond yield spiked briefly on Wednesday morning following PM Modi's announcement, on Tuesday, about a Rs 20 lakh crore economic package amid the coronavirus pandemic. The bond yields, however, retraced most of the losses due to the absence of details on the package, news agency Reuters reported. PM Modi said that India would provide Rs 20 lakh crore in fiscal and monetary measures to support an economy battered by a sweeping weeks-long lockdown to fight the novel coronavirus. He also added that the amount includes the previous package announced by the government worth Rs 1.7 lakh crore, and the steps taken by the Reserve Bank of India (RBI), to infuse liquidity in the markets.

The benchmark 10-year bond yield opened the day 12 basis points (bps) or 0.12 per cent higher at 6.28 per cent, but retreated quickly to to trade down 6 bps at 6.10 percent by 1:25 pm.

Speaking to Reuters, traders said market positions were light and shorting bonds was not working amid a lack of details on the economic package. Yields are expected to hold in a tight range ahead of the finance minister's press conference at 4 pm on Wednesday, which is expected to throw light on specifics of the stimulus package.

Market participants however said they did not expect the government to further increase market borrowings beyond the Rs 4.2 lakh crore hike announced earlier this month. The government is scheduled to borrow a record Rs 12 lakh crore from the market in the current fiscal year to March 2021, and analysts project the fiscal deficit could rise to at least 5.5 percent of the gross domestic product, sharply above the budgeted deficit of 3.5 percent.

Meanwhile, the equity markets too reacted positively to the PM's announcement. The benchmark BSE Sensex surged to an intra-day high of 32,845.48, a jump of nearly 1,500 points from previous closing, within the initial few minutes of trading. However, in the afternoon session, the markets trimmed nearly half of their morning gains. At 1:22 pm, the BSE index was trading at 32,009, up 637.88 points.