The buyers’ strike in the bond market continues. The latest government bond auction by the Reserve Bank of India on 11 May was a failure.

Investors bought only Rs81 crore of the Rs3,000 crore of bonds on offer. The rest devolved on primary dealers. This is the fourth auction in a row that has failed to raise the desired amount.

The immediate reason is that bond investors expect higher interest rates than what the Indian central bank wants to offer.

Many in the financial markets are now betting on a pre-emptive strike against inflation in the next meeting of the monetary policy committee that is due in June. There are also fears that the government will not be able to stick to its fiscal deficit target in an election year.

The bond market has been volatile this year, at least partly because of confused signalling by policymakers in New Delhi as well as Mumbai.

It will now be worth watching how the bond investors react once the results of the Karnataka elections are declared on Tuesday.