Bond yields are rising persistently since start of March 2011 and yesterday it touched four month high of 8.76 on the back of lackluster demand for the first two government papers in the first auction of financial year 2012-13. The first devolvement forced primary dealers to buy the unsubscribed portion which has hurt the market sentiment among bond traders that are pressurizing on bond yields. This indicates that market participants warrant higher yields whereas the central bank is not comfortable with such a high yields.
The factors that are responsible for yields to stay at higher levels are firstly, the central bank has kept its benchmark rate unchanged and higher inflation should uphold its decision unchanged in its next policy meeting; secondly in Union budget the government announced the borrowing of Rs3.7 lakh crore in the first half of the fiscal year about 65% of the gross borrowing programme and thirdly huge supply lined up are likely to keep GOI bond yields elevated and under pressure.
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