Treasury Futures

After more than a decade, the government bond market may see benchmark yields climbing to 10 percent levels. This implies higher interest costs for the government, which is yet to finish 50 percent of its annual borrowing.

Further, it could force corporates to offer Treasury Futures on their bond issues at a time when borrowing from banks would turn costlier. Corporates may prefer to float one-two year bonds, hoping that rates may soften later.

Senior treasury officials said that the benchmark yield touching the 10 percent-mark holds strong implications across all financial markets. On Tuesday, the rupee fell against the US dollar, following RBI's decision to stop selling dollars to oil companies.

The move is likely to spur dollar demand in the forex market. Treasury Futures ended at 42.64/65 against the dollar compared with the previous close at 42.55/56 levels.

Meanwhile, bond yields shot up to a high of 9.54 percent after the policy was announced. Yield on the 10-year benchmark bond, the 8.24 percent bond maturing in 2018, ended the day at 9.40 percent, rising from its previous close of 9.07 percent.

Of the total borrowing programme worth Rs 1,45,000 crore, the government has, so far, borrowed funds close to worth Rs 70,000 crore.