Firstly, from April onwards every week you may have gilts auction close to Rs 150bn, pressuring the yields. But because the Government borrowing programme will be very large, the liquidity in the system may ease a little bit. Banks’ market borrowings will reduce to that extent.

The Government revenues are not strong in the first quarter of a financial year. So, it will step up its spending, which will lead to fresh inflows into the banking system. As a result, the short-term yields will come down, but the long-term rates will inch higher.

Due to the frontloading of the Government''s borrowing programme, yields will rise even though there are expectations of inflation softening due to high base effect. The 10-year yield should trade in the band of 8.50-9% in the first half of FY12, and subsequently in the range of 8.25-8.75% in the second half of the year.

Murthy Nagarajan, head of fixed income, Tata Mutual Fund.