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Fixed Income

Bond Markets Crash, All Yields Above 9%


Bond markets are in a tizzy. The 10 year bond is now close to 9.25%. And that doesn’t even tell you the story – all other bonds, I mean every single one of them – is above 9%, and short term yields are beyond 11%. Look at the yield curve:

Yield Curve

(Source: CCIL)

And look at just the 10 year bond above, over the month of August:

10 yr bond movement in Aug

This is going absolutely nuts.

The 10 yr was issued at Rs. 100 in May. This is a 13% loss in the 10 year security in three months. I don’t remember the last time the bond market was this bad (maybe 1998).

Impact: Mutual funds that hold long term bonds will lose serious money (more than 2% just today).  Ultra short term and liquid funds may not be impacted much. Banks will lose big time as they hold nearly 44% of all government securities. LIC and other Insurers (18%) are next.

Money is getting more expensive. Expect deposit rates to increase. Then, expect lending rates to increase. 


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