Indian bond prices continued to decline in June as yields rose, owing to increased government borrowing programme and expectations that the Reserve Bank of India (RBI) may not cut rates further, after the release of strong economic data.
The government has scheduled to borrow around Rs4.5 trillion during the fiscal to finance the widening deficit. The expectations of higher government borrowings resulted in the yield on the 10-year benchmark bond maturing in 2019 rising to 7.01% in June, from 6.7% in the previous month.
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RBI raised Rs60,000 crore in June. The softening in the headline inflation, which declined to -1.3% for the week ended 20 June, from 0.6% on 23 May, helped the bond prices.
In June, mutual funds net invested Rs10,740 crore in debt securities, almost the same as in the previous month. In comparison, foreign funds invested Rs1,070 crore in debt securities last month.
Graphics by Sandeep Bhatnagar / Mint