Narrowing bond yields signal liquidity squeeze in markets, shows data

Spread between 10-yr G-sec and 2-yr bond yields narrows to 38-mth low

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The decline in liquidity is attributed to factors such as decline in foreign exchange reserves, advance tax payments by corporates and a much faster growth in bank credit compared to deposits

Krishna Kant Mumbai
Financial markets are signalling liquidity tightening and a slowdown in the economy, as shown by a sharp rise in yields on short-term bonds, resulting in the spread between those and the rates on long-term bonds narrowing.

The spread between the yield on the 10-year government of India and two-year bonds declined to a 38-month low of 36 basis points on Tuesday compared to 83 basis points at the close of last month and 200 basis points at the end of December last year.

The spread was 209 basis points at the end of August last year.

According to the data

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First Published: Sep 20 2022 | 10:50 PM IST

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