India bond yields surge most in over 3 years

The yields on the government bonds in India have surged by 22 basis points, the most in the past three years, as the government announced a plan to increase its borrowing target for this year. The yields on the 10-year G-sec bonds surged in early morning trade. However, at the end of the day’s trade, surged by 20.1 bps to 6.168%.

This is the biggest single-day rise in 28 months. The last time the bond yields surged so much was way back on February 8, 2017, when they had surged by 31.6 bps.

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It is pertinent to note that prior to this sell-off, bond yields were at a 10-year low -- touching the sub-6% level for the first time in the decade -- as investors were looking for a flight to safety.

The yield spiked as the investors sold off G-secs after the government announced an increase in the current years’ borrowing target by Rs 4.2 lakh crore to Rs 12 lakh crore.

Bonds have an inverse relationship to interest rates - when interest rates rise bond prices fall, and vice-versa.

Most bonds pay a fixed interest rate. If interest rates in general fall then the bond’s interest rates become more attractive so people bid up to the price of the bond.