Budget spooks bond yields, up 31 bps from 16-year low

The massive spik e in 202122 borrowing target at Rs 23 lakh cr ore, has led to a 31 basis points rally in benchmark bond yields to w ell over 6 per cent since the announcement of Budg et, and RBI needs to contain the same by reining in the short-sellers, says a report.

The RBI assiduous support to the Centre's debt management has ensured that in the first hal f of 2020-21 the borrowing cost f or the Centr e was the lo west in p ast 16 years as bond yields were below 5.75 per cent, t he report by S BI Research said.

It primarily blames shortsellers, w ho a re worried over the larg e bor rowing plans, f or t he sudden spi ke in the yiel ds and urges the central b ank to r ein them in.

The r eport expects the Centre's g ross bor rowing in this fiscal y ear to touch Rs 13.9 lakh cr ore, higher than the r evised estimate of Rs 12.8 lakh cr ore, and net borrowing a t Rs 11.6 lakh crore, up from the revised estimate of Rs 10.5 lakh crore.

The combined g ross borrowings of the Centr e and states ar e seen a t Rs 22.1 lakh crore this year, higher than the revised estimate of Rs 21.5 lakh cr ore, and net at Rs 18.4 lakh cr ore, up from Rs 17.8 lakh cr ore, according to the report.

The report also sees gross borrowings of the Centr e inching do wn to Rs 12.1 lakh crore next fiscal y ear, and net at Rs 9.2 lakh crore but the combined g ross debt bor rowing jumping to Rs 23 lakh cr ore and net inching do wn to Rs 18.1 lakh crore.

The cur rent fiscal is an interesting y ear with the two halv es ha ving diametrically opposite narratives. During AprilSeptember (H1), bond yields were mostly below 6 per cent (the lo west borrowing cost in the past 16 years) on the bac k of ef fective yield management by RBI.