Bond yields moves towards key level before govt presents its annual Budget

Indian government bond yields trended marginally higher in early trades at the start of the week in which the federal budget announcement remained the key, even as central bank's surprising debt sale move weighed on investor sentiment.
 

The benchmark 10-year yield was at 6.9748 per cent as of 10:10 a.m. on Monday, close to the key technical level of 6.98 per cent, after closing at 6.9641 per cent on Friday.
 

"We could see some selling as traders may cut positions after bond sale, and will look to lighten positions after auction of the benchmark paper on Friday," a trader with a primary dealership said.
 

The Reserve Bank of India sold bonds worth Rs 3,405 crore ($407.06 million) in the week ended July 12 through the secondary market, its first such sale in more than eight months as the banking system's liquidity surplus jumped.
 

Even as the move took most market participants by surprise, Sandeep Yadav, fixed income head at DSP Mutual Fund, said it was the writing on the wall, and suggested that investors opt for 20-year and above maturity bonds.
 

Government will announce the federal budget for the current financial year on Tuesday, with a major focus on the fiscal deficit target and the gross borrowing figure.
 

Median forecasts in a Reuters poll showed the fiscal deficit target at 5.1 per cent of the gross domestic product and gross borrowing at Rs 14.13 trillion, the same as February's interim budget.
 

Still, many market participants feel the government has room to cut the fiscal deficit target by 20 basis points and borrowing by around 500 billion rupees after a better-than-estimated surplus transfer from the RBI and strong revenue collections.
 

Meanwhile, US yields rose on Friday, with the 10-year yield around 4.23 per cent in Asian hours, and investors keenly awaiting reaction in Treasuries after US President Joe Biden abandoned his reelection bid and endorsing Vice President Kamala Harris as the party's candidate for the November election.



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