Fintotal News Analysis | Bond Yields on the Rise
Bond Yields on the Rise
Ruby Jacob, 02 Jun 2010

What's happening?

Bond yields continue to stay high and rising. The benchmark 10-year yield on the 2020 bond closed at 7.55% levels on 29 May 2010. The short-term trigger appears to be the deadline for telecom companies to pay their 3G spectrum fee to the government. The ~ Rs65,000 crore is large enough to suck out liquidity from the system temporarily. Of course, in the longer term too, the fiscal deficit and the inevitable tightening of the monetary policy by the Reserve Bank are likely to keep yields on an upward slope.

What does it mean for me?

It just means that this is not a good time to be investing in bonds, fixed deposits and the debt market in general.

Of course, there are also other considerations such as asset allocation and short term cash requirements that make you put money in bonds and deposits. In that case, you would be advised to invest in liquid or short term instruments and stay shy of longer duration instruments such as 5-year fixed deposits or ten-year bonds.

If you want to know why, you might want to read on below to understand the impact of interest rates on debt market. This will help you understand yields, interest rate movements and the performance of your debt portfolio in different scenarios.

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