Bond market to remain bearish on high Gilt supply

The bond market is likely to remain bearish with yields inching up in near future on the back of oversupply of government securities (Gilt or G-Sec) along with inflation concerns, treasury officials said.

"There will be a bearish trend in the bond market due to the oversupply of government securities and concerns relating to inflation," a treasury official of a private sector bank told PTI today.
The benchmark 10-year 7.80%, 2021 bond yield today touched a high of 8.83% before going down to 8.75%. The yield was 8.78% on Friday.
The treasury official said that there would be continued weekly supply of Rs 12,000-Rs 15,000 crore government bonds during the second half.
Meantime, despite the key policy rate hikes for 12 times in the last 19 months, wholesale-price index based inflation was at 9.72% in September, further raising the fears of yet another tightening by the monetary authority.
"There are concerns relating to further monetary tightening by RBI in the wake of high inflation, and fears of slippages in the fiscal deficit target on the back of higher government borrowing among others. Looking at this scenario, it is difficult to predict the yield on the benchmark 10-year bond," Ananth Narayan, head of treasury at Standard Chartered Bank India said.
On September 30, the government surprised the market with an announcement that it would borrow an additional Rs 52,900 crore from the market.
Though the government maintained that it will stick to the 4.6% deficit target, there are no takers for this optimism, considering the slowing tax collections. With this additional borrowing, the overall government borrowing will touch Rs 4.8 trillion in this fiscal. In the second half, the government will borrow Rs 2.20 trillion.
Narayan, however, said the central bank may conduct OMO (open market operations) to ease the liquidity situation.