Bond yields rise to over 4-month high on worries of higher borrowing, lower revenues

Bonds

Yield on the benchmark sovereign bonds climbed to a four-month high on August 19 morning on worries of higher government borrowing and lower revenue following the proposed overhaul of the goods and services tax (GST) regime, which will likely bring down the collections.

At 9.55 am, the 10-year benchmark bond yield traded at 6.511 percent compared to 6.497 percent the previous day. The yield is the highest since March 28 when it traded at 6.582 percent.

“The S&P upgrade gave an immediate boost but ongoing bond supply pressures and global uncertainties like tariffs and geopolitics continue to influence yields. GST reform announcement has added more pressure on yields,” said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP.

Prime Minister Narendra Modi in his 79th Independence Day address promised next generation GST reforms.

The Centre has proposed to "essentially move towards simple tax" with two slabs —"standard and merit", with special rates applicable for only for select few items, the finance ministry has said.

In a statement issued after the PM’s address, the ministry said the government has sent its proposal on GST rate rationalisation and reforms specifically linked to structural reforms, rate rationalisation and ease of living to the group of ministers (GoM) constituted by the GST Council.

This has raised concerns of lower revenue and may prompt the Centre to borrow more from the market through government securities, experts said.

Bond yields, which had eased after S&P ratings upgrade, have been rising since the announcement of GST reforms.

Recently, S&P upgraded India’s rating to “BBB” from “BBB-” on economic resilience and sustained fiscal consolidation.