Tanking yields, Soaring Funds

The month of August saw the benchmark yield on sovereign and corporate bonds reaching their historic lows. This reflected ample liquidity in the markets, which got a fillip from the coupon and redemption inflows by the government. That the markets didn't react harshly to the S&P and Moody's downgrades reflected the bullish sentiment among the players. Given a mere 2 percent rise in industrial output in first quarter and the downward revision in the GDP growth estimates, RBI on several occasions hinted at a softer interest rate regime. The coming month, government is expected to borrow from markets to meet its staff salaries. Depending on the quantum of auction, the bond rally is expected to mellow down and yields to take off from their historic lows. However short, the markets should stabilize presuming that government does not resort to more than one auction and spends within its limits. With the outlook biased towards a stable interest rate, most of the med