Traders all over the world tend to avoid risk and sometimes park their funds in something stable or reliable like Government bonds. But recent movements of RBI in the debt market has led to a lot of confusion among the traders. High borrowing cost in debt sale has cued yield rise, this has created scepticism among traders.
Recently, Reserve Bank of India has announced that the government-issued bond yield will be rising. This won’t change or fluctuate for the time being. This will offer higher borrowing costs for the debt sale. The Reserve Bank of India sold bonds last Friday at a fixed yield of 6.76% as opposed to 6.65% that was estimated in the Bloomberg survey. The RBI can choose to protect the 6% mark of the yield, to create stability and confidence in the mind of traders that would boost positivity in the market condition. RBI is a regulatory body that acts on behalf of the government in terms of debt sales. Even though fixing the yield rate to a certain mark would provide a certain perspective to the RBI, but The Central bank has to introduce a support plan in favour of the purchasers. Failing to do so, will result in even higher yields. In the case of the low bond market price, it would create a negative impact on traders.
Due to the strict monitoring of bonds by RBI, traders are now waiting for a change in the yield curve and expect the central bank to come up with measures that would protect the investor’s interests and ease pressure in the bond market. The cost benchmarking of the bonds more specifically 10-year bonds jumps 30 points in the last 3 weeks. So, RBI is playing the long game and choosing to stay away. This is to make sovereign debt to generate more interest among the traders and investors. When the market prices are high, investors are attracted to buy more bonds. This will bring the yield down.
The concept of time is relative in this aspect because it completely depends upon the investors and whether or not RBI would take proper measures to attract more traders. Either of these options should be made for the market to see a positive impact.
