Bond markets fail to rally

Despite a soft stance by the US federal Reserve, the Indian bond markets have failed to rally significantly over the past few weeks.

“Inflation continues to be a big risk,” says Arun Kaul, Head (Treasury), PNB. This is due to the steep rise in crude oil and food grain prices, which will, at some stage, have to be passed on to the consumers, which will, in turn, stoke inflation. Then, RBI last fortnight increased the ceiling for market stablisation scheme (MSS) bonds to Rs 2,50,000 crore.

This is Rs 1,00,000 crore more than the expected figure. With strong foreign exchange flows continuing unabated, the government will probably exhaust almost the entire headroom available under MSS. In this fluid situation, the negative sentiment is expected to persist with no expectation of yields coming down.