Biggest single day rise for Bond Yield in a decade
Today the Indian government announced a higher than expected borrowing plan. This caused panic in the market where the participants had taken huge positions following the rate cuts done by RBI last week. The bond yield had touched its all-time low of 4.86 percent intra-day on Monday. The 10-year benchmark bond yield closed at 5.87 percent on Wednesday 7-Jan-2009. Thursday is a holiday for the markets.
The government has said that it would issue 500 billion rupees ($10.3 million) of fresh bonds by March with 150 billion rupees of bonds to be auctioned on Friday. The government has already borrowed 1.77 trillion rupees of bonds this year compared to 1.5 trillion rupees last year.
But this rise in yields seems like a temporary reaction to Fridays auction. With inflation expected to ease further and interest rates to decline, this rise might just be the best opportunity to invest in bonds funds. The bond yields should start their downward journey soon.
Remember that bond yields have an inverse relation with the returns on bond funds.