The yields on short-term paper have fallen as a result of last Friday’s rate cuts by the Reserve Bank of India. The yield on three-month treasury bills, for instance, is down to 4.2%, compared with 4.65% on 31 December.
Nor is the fall in yields limited to government bonds. The yield on top-rated three-month commercial paper, for instance, is down to 10.62%, compared with 11.78% on 31 December.
The implication: Some of the gains are being passed on to companies as well. But yields on long-term paper have not fallen by much. For instance, the yield on the AAA-rated five-year corporate bonds has remained more or less at 8.5%.
Also See Still High (Graphic)
But it’s important to remember that, as late as 2005, the yield on top-rated three-month commercial paper was as low as 5.5%. That indicates yields will have to fall far more for them to start having the effect of a stimulus.
Write to us at firstname.lastname@example.org