When the government announced it would double its market borrowing last week, an unprecedented event, the bond market shrugged and moved on.
Sure, the benchmark 10-year bond yield spiked briefly. But yields have eased despite the finance minister announcing details of the stimulus package with the promise of more.
What explains this intriguing calm among bond investors? The stimulus package relies heavily on bank lending and little on direct outgo from the government.
Economists calculate that the actual hit on government finances from the package is just a fraction of the total package size which is 10% of gross domestic product (GDP). “The government (ex of RBI) has so far announced three post COVID economic support measures.