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Bond yields may fall; not reason enough to invest in gilt
Yields on government bonds may fall slightly in the near term following the Reserve Bank of India’s (RBI) move on Tuesday to hike banks’
mandatory investments in government bonds to 25% from 24%. But, this may not be reason enough to invest in gilt funds or mutual fund schemes that invest in government bonds because most banks’ government bond holdings exceed 25%, fund officials and watchers said.
Also, the likelihood of tightening of money supply by RBI early next year will weigh down on government bond prices, they said.
Bond prices and yields move in opposite directions; higher the bond price, lower its yield and vice-versa. Government bond prices have fallen significantly from the start of this year, as the government’s huge borrowing programme resulted in an additional supply of papers in the markets. The yield on 10-year paper has risen to 7.3% currently from a historic low of 4.86% early January.
mandatory investments in government bonds to 25% from 24%. But, this may not be reason enough to invest in gilt funds or mutual fund schemes that invest in government bonds because most banks’ government bond holdings exceed 25%, fund officials and watchers said.
Also, the likelihood of tightening of money supply by RBI early next year will weigh down on government bond prices, they said.
Bond prices and yields move in opposite directions; higher the bond price, lower its yield and vice-versa. Government bond prices have fallen significantly from the start of this year, as the government’s huge borrowing programme resulted in an additional supply of papers in the markets. The yield on 10-year paper has risen to 7.3% currently from a historic low of 4.86% early January.