The benchmark Bond yield hit a fresh 14-month high on Thursday having closed at 7.06 per cent even as the markets continued to factor in worries about fiscal slippage, rising inflation and dampening expectations of a rate cut going forward.
This has led to a steepening of the yield curve where-in long tenor yields have risen much more than short-tenor yields. The benchmark yield for instance has risen by 36 basis points since October 4. Against this, short-tenor yields have not seen much movement.
The yield curve tends to steepen when the market expects interest rates to either rise or not fall from current levels. The reverse happens when the market starts anticipating a fall in rates in the near term—a phenomenon seen in July when a low CPI inflation for June triggered rate cut expectations.