Uncertain times in bond market casting shadow on economy

Yields on the 10-year bond rose about 70 basis points in the December quarter, causing nominal losses of at least Rs 150 billion to banks

The notion that the bond market will eventually replace bank loans is coming under scrutiny as yields rise, while banks keep their lending rates relatively unchanged. 

The rate cycle has decisively changed to an uptick, as can be seen by the sharp reaction to any incremental adverse news flow. Investors are cutting losses, while the successive withdrawal of high-yielding quasi-equity bonds, which yielded returns of as high as 11-11.25 per cent, has caused further losses to investors, particularly mutual funds. 

Not only has the rise in bond yields caused banks mark-to-market losses in the December quarter and will affect their