The bond market has been relatively buoyant the past few days, despite not-so-encouraging macro fundamentals and weak global cues. Shobhit Mehrothra, head of fixed income at HDFC MF, explains that this is because the bond market is pinning its hopes on the start of the fiscal consolidation process by the government.
We have all been waiting for the Presidential elections to get over and the process of fiscal consolidation to begin with a fuel price hike, diesel price hike and that in turn would lead to 2% subsidy cap which the Finance Minister had mentioned in the Budget that they would endeavor to meet, he said in an interview to CNBC-TV18.
However, the lack of actual policy measures still casts a shadow over the market. Especially with crude prices rising again, if the government does not act on a diesel prices or fuel prices, and if the Reserve Bank keeps interest rates unchanged, Mehrotra says bonds could see a sell-off. We could see yields rising by 10-15 bps, thats a