Bond yields jump, rupee weakens as trends fall short of hopes of larges NDA win
Government bonds and the rupee weakened sharply as the incoming results of the Lok Sabha election suggested a lower-than-expected majority for the ruling National Democratic Alliance (NDA), market participants said.
Yield on the 10-year benchmark government bond jumped 9 basis points to trade at 7.03%, while the rupee shed 28 paise versus the US dollar to trade at 83.42/$1. Bond prices and yields move inversely. A rise of 9 basis points on the 10-year bond yield corresponds to a fall in price of around 63 paise.
A rise in government bond yields pushes up cost of borrowing across the economy as sovereign debt is the benchmark used for pricing other credit products.
“Initial results have caused a bit of a selloff, especially after the large rally yesterday (Monday) which was based on expectation of a resounding majority for the NDA. There could be some consolidation after the full results are clear,” said Rajeev Pawar, head of treasury, Ujjivan Small Finance Bank.
On Monday, yield on the 10-year bond had closed at 6.94%, its lowest level in more than two years, while the rupee had enjoyed its largest single-day gain since December.
Bond traders said that the sharp rise in yields was owing to concerns that a government with a lower majority at the Centre could be prompted to undertake more expenditure on social sector schemes rather than double down on fiscal consolidation.
“We could see state government bond spreads blowing out as well if the final results suggest a return for the NDA with weaker numbers. This
