High bond yields to impact govt borrowing: Source

The government will have to consider cancelling or postponing its borrowing programme if bond yields stay "unacceptably" high, a senior finance ministry official with direct knowledge of the matter told Reuters on Friday.

The official also said yields have room for moderation as market liquidity has improved on tax refunds, redemption of cash management bills and coupon payments.

India's 10-year benchmark bond yield has been moving in a 8.32 and 8.38 range this week, with traders predicting the yield to rise as high as 8.50% on concerns over tight cash conditions and rising interest rates. It was trading at 8.36% on Friday.

"With market liquidity being very comfortable, there is no reason for yields to be this high. Yields are unacceptably high," the official said.

"We cannot go on borrowing with yields being so high. If yields stay at these unreasonable levels, we will have to consider the option of canceling, devolving or postponing the borrowing."