Govt borrowing may spike yields, dent gilt fund returns due to MTM impact

Some market participants say there is still room for upside for long-duration products

The spike in domestic yields on 10-year government securities (G-secs) is likely to dent returns on gilt funds, which have been gaining traction amid expectations of lower yields, driven by the accommodative monetary policy stance taken by the Reserve Bank of India (RBI).
 

On Monday, the yields on 10-year G-secs saw a spike of 20 basis points (bps), following the government’s move to raise its borrowing estimate for FY21 to Rs 12 trillion from the earlier estimate of Rs 7.8 trillion.
 

“Gilt funds can tend to run longer durations and as yields move up, there is a negative mark-to-market impact