Yield on 10-year benchmark gilt at 12-week high of 8.23%

Speculation on govt resorting to additional borrowings to cut fiscal deficit pushes up yields

Gilt yields rose today on expectations of additional borrowing by the government in the second half of the current financial year. The yield on the 10-year benchmark 8.15 per cent gilt closed at a 12-week high of 8.23 per cent; yesterday, it closed at 8.21 per cent. On August 31, the yield on the benchmark gilt had ended at 8.24 per cent.

“There are speculations in the market the fiscal deficit would widen, due to which the government would resort to additional borrowings in the range of Rs 35,000 to Rs 40,000 crore. Due to this, yields rose today,” said a bond dealer with a private sector bank.

The dealer added for the current financial year, the government’s fiscal deficit would be 5.6 per cent of the gross domestic product (GDP). Last month, due to subdued tax revenue and higher spending on subsidies, the government had revised its fiscal deficit target to 5.3 per cent of GDP for 2012-13, compared with the previous target of 5.1 per cent.

TRADE IN BOND

• From the first week of October, the Reserve Bank of India has been carrying out weekly auction of bonds worth Rs 12,000-13,000 crore
   
• On Friday, the central bank plans to auction bonds worth Rs 13,000 crore
   
• According to S Srinivasaraghavan, executive vice-president and head (treasury) of Dhanlaxmi Bank, the yield on the 10-year benchmark bond is expected to trade at 8.20-8.23 per cent
   
• Dealers said there was concern on growth, owing to which traders weren’t taking positions

Earlier, the government had indicated it would borrow Rs 2 lakh crore in the October-March period to stick to the budgeted target of Rs 5.7 lakh crore for the entire financial year. From the first week of October, the Reserve Bank of India (RBI) has been carrying out weekly auction of bonds worth Rs 12,000-13,000 crore.

Tomorrow, the central bank would auction bonds worth Rs 13,000 crore.

According to S Srinivasaraghavan, executive vice-president and head (treasury) of Dhanlaxmi Bank, tomorrow, the yield on the 10-year benchmark bond is expected to trade at 8.20-8.23 per cent.

Dealers said there was concern on growth, owing to which traders weren’t taking positions.