Bond market braces for bear hug

Long rally seen ending; eyes now on Trump and Fed, and Union Budget take on deficit

The bond market is slowly preparing for a lacklustre market, expecting the recent rally, the longest since 2003, to get over.

Indian bonds have outperformed emerging market (EM) peers in recent months, despite outflow from foreign investors. Abundant liquidity, aided by the demonetisation drive, and inadequate avenues to deploy these funds, have fuelled the rally till now. With slowing growth, there were also hopes of steep rate cuts by the Reserve Bank of India (RBI) but all those factors are fading. 

The yield on the 10-year bond started the year at 7.73 per cent. On November 24, this had dropped to 6.19