The prices of both government and corporate paper crashed today over worries of war and that the rate of inflation would rise. The drop in prices may also reflect the end of the honeymoon banks and mutual funds had with the bond market, at least for the time being.
The benchmark 10-year paper (9.81 per cent 2013) closed at 6.4047 per cent, after touching an intra-day high of 6.51 per cent. Yesterday, it closed at 6.2677 per cent.
It is now up 26 basis points from last week's close and nearly 60 basis points over the lifetime low of 5.8244 per cent in mid-January. In fact, the price of this paper has lost nearly 50 per cent of what it had gained between October (after the credit policy was announced) and January.
The yield on the five-year benchmark corporate paper went up from 6.75 per cent to 7.10 per cent today. With this, the spread between five-year corporate paper and gilts has widened from 67 basis points to 90 basis points.
