10-year G-Sec, repo spread reaches decadal high; market expects inflation

The spread between the benchmark 10-year government bond’s yield and the Reserve Bank of India’s policy or repurchase rate (repo) is now at the highest in more than a decade, suggesting that the market expects a much higher interest rate and inflation in the coming months.

The yield on the 10-year government security (G-Sec) settled at 6.35 per cent on Wednesday, 235 basis points (bps) higher than the RBI’s repo rate of 4 per cent.

The current differential or spread is nearly three times the average spread in the last 10 years. The median spread has been around 88 bps since the