Bond market was assuming net borrowing of Rs 9 to Rs 9.5 Lakh Crores - Murthy Nagarajan, Tata Mutual Fund
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Murthy Nagarajan, Head-Fixed Income, Tata Mutual Fund
“Bond market was assuming net borrowing of Rs 9 to Rs 9.5 Lakh crores and total borrowing programme of Rs 12 to Rs 12.75 Lakh crores. The government has switched short term papers with longer maturity papers with RBI. RBI converted Rs 1.18 Lakh crores of its holding to longer term maturities on 31st January 2021. This included Rs 63000 Crores of 2022 maturity converted to long dated papers. The debt market expected resolution of tax treatment of bonds to facilitate inclusion in the global bond index. The higher borrowing and no mention of resolution of tax issues for global bond fund inclusion spooked the markets. This budget has not materially reduced fiscal deficit even thought and global background is of rising yields due to higher inflation. The US is expected to rise rates by 4 times in this calendar year and other advanced economies are also expected to rise rates. The market had factored an orderly hike in interest rates by RBI. Given this high borrowing programme, normalization of rates by RBI to control inflationary pressure is now in question. This may create a anomaly with short term rates being anchored due to lower rates and high liquidity while the long end of the yield curve reacts to supply pressure in the economy.”
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