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:
(Source: CCIL)
And look at just the 10 year bond above, over the month of August:
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.
