I used to think if there was reincarnation, I wanted to come back as the President or the Pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody,” said James Carville, an adviser in the Bill Clinton administration in 1993, when bond yields in the US spiked in response to fears of increased spending.
The quote, now a favourite of bond vigilantes, took on an Indian connotation last week when the Reserve Bank of India’s (RBI) governor Raghuram Rajan used it in a speech in New Delhi. Rajan was sending a message, perhaps on behalf of the bond markets, to the government. The message: we won’t take kindly to stretching the fiscal deficit targets for a second year and we are not comfortable with the surge in supply of state government bonds.
The message from the bond markets, if not intimidating, is certainly worrying. And the message is going out both to the Narendra Modi-led central government and the Rajan-led central bank.
