But the benchmark 10-year government-security yield remained stuck in 8-7.5 percent range through all of 2015 and half of 2016, moving lower to sub-7 percent only when the RBI promised in April to reduce the system’s liquidity deficit.
With the central bank slashing rates once more and the inflation outlook promising a few more cuts can follow in 2017, veteran observers of the bond market believe a 6 percent or sub-6 percent yield looks like a possibility next year.
Such a move will have a bearing on almost all vital economic functions. Cost of borrowing will reduce as loans are linked to the risk-free g-sec rate, banks will see profits on their treasury books and economic growth may perk up further.
In an interview with CNBC-TV18, Axis Bank Deputy MD V Srinivasan and Bank of America India MD and Treasurer Jayesh Mehta talked about the possible trajectory for bonds and the implications for the economy.
Interview transcript to follow.