The classic inverted yield curve is caused by a liquidity / solvency crisis and one could very easily be caused in India if attention is not paid right now. As we worried last two weeks, short term liquidity drying up despite auctions has taken the short yields to 9.3% a new premium for these two reform decades for India since (1997) while the first Fixed /income yield deflation has hit the shores like a Tsunami fromt he west to 8.3% from 8.75% last month

Ideally the mid term yields (3, 5, 7 yr terms) responding to inflation however can harness the inverted yield curve we have done on multiple occasions though never when Oil was rising along with the Dollar and it remains to be see if India can cross the rubicon and beat inflation with this stick than get grungy deflated like Europe. 

India should probably avoid the 20 year or 30 year terms for bonds as they seem to have supported deflation in the Wild West, bu tcan get matching terms for Infra projects with 15 year concessions matching 15 year financing to at least make sense to investors and raise some cheap money to outgrow the deflationary impact on the long end.

Posted via email from The India Investment Post