Financial markets try to anticipate the future. But Thursday saw two markets send out different signals.
While the 30-share Bombay Stock Exchange Sensex closed above the 10,000 mark for the first time since early January, bond prices dropped sharply.
Equities had a good day partly because many feel that the new plan by the US treasury to clean bank balance sheets has a good chance of success, even as there are hopes that the worst is over for the world economy. 2009 will be a terrible year, but there will be few nasty surprises after that.
The bond market was shaken by a local factor. The government announced a massive borrowing programme in the first half of the next fiscal year. It plans to sell Rs2.4 trillion of bonds in six months to fund its large deficit. Bond traders expect this avalanche of issuance to send interest rates higher.
Taken together, what the two financial markets are telling us is this: The global economy could be on the mend, but our own economy may be weighed down by a record fiscal deficit.