MUMBAI: The government bond market also reacted to the rising crude oil prices as a result of the war in Europe and the benchmark yield on the 10-year government securities (G-Sec) hardened to 6.89% from 6.81% on Friday. On Sunday night Brent crude oil price had jumped to a multi-year high at $139 per barrel.
According to bond dealers because of the rising oil price, the prices of petro-products like petrol, diesel etc. are sure to rise. To contain the same the government would need to cut taxes and duties, which in turn could force the government to borrow more. This in turn would lead to higher yield. On the other hand, if the government allows petro-product prices to rise, that could lead to higher inflation and hence higher rates. Either way higher rates seem to be a given and hence the nervousness among bond market players, said a dealer.
In the medium term, the factors affecting the market sentiment currently could stall growth and yet lead to higher inflation. “A potentially stagflationary situation brought about by geopolitical developments is something that one needs to be cognizant of,” said Rajeev RadhakrishnanCIO – Fixed Income, SBI Mutual Fund. The top fund manager feels that investors should stay within their intended asset allocation. “Debt investors should ideally position for a change in the interest rate cycle” Radhakrishnan said.
For the next few weeks, the saving grace for the bond market is that there are no weekly bond auctions and the extra cash that the government needed till the end of the current fiscal has been mopped up through two bigger-than-planned borrowings through treasury bills.
According to bond dealers because of the rising oil price, the prices of petro-products like petrol, diesel etc. are sure to rise. To contain the same the government would need to cut taxes and duties, which in turn could force the government to borrow more. This in turn would lead to higher yield. On the other hand, if the government allows petro-product prices to rise, that could lead to higher inflation and hence higher rates. Either way higher rates seem to be a given and hence the nervousness among bond market players, said a dealer.
In the medium term, the factors affecting the market sentiment currently could stall growth and yet lead to higher inflation. “A potentially stagflationary situation brought about by geopolitical developments is something that one needs to be cognizant of,” said Rajeev RadhakrishnanCIO – Fixed Income, SBI Mutual Fund. The top fund manager feels that investors should stay within their intended asset allocation. “Debt investors should ideally position for a change in the interest rate cycle” Radhakrishnan said.
For the next few weeks, the saving grace for the bond market is that there are no weekly bond auctions and the extra cash that the government needed till the end of the current fiscal has been mopped up through two bigger-than-planned borrowings through treasury bills.