Bond traders got a rude shock on Wednesday when their best-laid plans went up in smoke after the Reserve Bank of India (RBI) surprised with a status quo on policy rates. The biggest bet of bond traders was that the monetary shock from currency withdrawal to an already slowing economy will give enough firepower to the doves of the monetary policy committee to slash rates.
Some even went to the extent of betting on a steep 50 basis points cut. It was no wonder that yields dropped by more than 50 basis points ever since demonetization took effect on 9 November. A basis point is 0.01%.