Bond yields becoming unsustainably high has a big bearing on central, state govt, says FM Nirmala Sitharaman

“To some extent the Reserve Bank of India (RBI) has already started diversifying from US Treasuries,” Sitharaman said in an interview to Network18's Group Editor-in-Chief Rahul Joshi.

Finance Minister Nirmala Sitharaman on September 5 said that the rising bond yields have a big bearing on the central and state government.She added that the government is not concerned about the rising bond yields, but have been observing it and it is not affordable.

“Yes, I won’t say I am concerned, but I am observing it and it is not affordable. Also at a time when interest rates are otherwise low, bond yields becoming unsustainably high has a big baring on government and states,” Sitharaman said in an interview with Network18 Group Editor-in-Chief Rahul Joshi. “My fiscal math is absolutely fine as of now,” she added.

Yields across short- and long-tenure bonds rose in August, following Prime Minister Narendra Modi’s Independence Day speech, where he announced the Centre’s plan to rationalize the GST framework. Concerns over fiscal slippage due to cuts in the GST had sparked selling, while weak demand for upcoming government bonds had also added to nervousness.

The proposed GST revision added to concerns around the RBI’s hawkish policy tilt and a supply-demand mismatch. This had led to the 10-year G-Sec yield moving to pre-Feb policy levels and thus giving up all gains from the RBI’s easing actions (100 basis points rate cut and impending CRR cut), with the yield curve also bear-steepening.

Rising yields, instead of attracting inflows, are amplifying fears over India’s fiscal health, which has posed another negative for the rupee.

Currently, the yield on the 10-year benchmark bond is trading at 6.4658 percent.