New Delhi, Jan. 14 -- The 10-year government bond yield is a benchmark that determines the interest-rate environment in the debt market. While there are several bonds traded in India, this bond attracts the most attention. Since June, its yield has stubbornly stayed in a 6.40-6.60% range. This is notwithstanding the fact that the Reserve Bank of India (RBI) has been lowering its repo rate, which ought to have pulled down bond yields.

This divergence would not be an issue if it did not affect interest rates beyond the market for government securities (G-Secs), such as the rates of bonds issued by state governments and corporations.

But all bond yields are benchmarked with what G-Secs offer. Hence, depending on the spread that must be off...