Inflation and lockdown worries weigh on G-secs; yields rise 10 bps

Inflation and lockdown worries weigh on G-secs; yields rise 10 bps

MUMBAI: The benchmark bond yield surged Thursday pulling prices down as an unexpected wholesale price rise coupled with an estimated economic cost of localised lockdown weighed on investor sentiment.

The move came on a day when the Reserve Bank of India conducted its first government securities acquisition programme (G-SAP), a mechanism to keep rising yields under check. The central bank bought Rs 25,000 crore worth of sovereign papers including the benchmark one.

The benchmark gauge rose 10 basis points to close at 6.13 percent, the level last seen on April 5, when the Reserve Bank of India announced its monetary policy, packed with new measures like the G-SAPs.

“Worries over inflation and lockdown pushed the yields up,” said Kumaresh Ramakrishnan, CIO-Fixed Income, PGIM India MF. “While WPI data printed higher than market expectation, a second series of localised lockdowns could slow down the growth momentum and pressure tax revenues leading to fiscal slippage worries for fiscal FY 22.”

The wholesale price-based inflation shot up to over 8-year high of 7.39 percent in March due to rising crude oil and metal prices. Market was expecting about 6.5 percent. Higher than expected wholesale prices led market participants to believe that consumer prices too will rise faster, a key trigger to change monetary policy measures.

The second wave of coronavirus forced state governments like Maharashtra to impose select lockdown choking normal business activities. Mumbai, the commercial capital of India is observing 15-day public curfew amid limited public movement.

This in turn, could crimp the country’s economic growth resulting in lower GST (Goods and Services Tax) collections for North Block, which may have to borrow more to bridge the fiscal gap.

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