10-year govt bond yield could drop to 6.75% later in 2024: ICICI Bank

India's benchmark bond yield could drop to a two-year low in the latter half of 2024 as the government unexpectedly cutting its borrowing target for 2024-25 turns demand-supply dynamics favourable, ICICI Bank's head of treasury said on Thursday.

"We feel that beyond the middle of this calendar year, by the July-September quarter, we could see the benchmark bond yield touching at least 6.75% if not lower," said B. Prasanna.
 

"By that time domestic banking system liquidity would have eased, the Federal Reserve would have cut rates, and the Reserve Bank of India would also have started its shallow rate easing cycle."
 

 

India's benchmark bond yield last touched 6.75% in February 2022. It slid to a more-than-seven-month low of 7.04% on Thursday after the government unexpectedly lowered its gross borrowing target.
 

Finance Minister Nirmala Sitharaman said the government aims to reduce its fiscal deficit to 5.1% of GDP and borrow a gross of 14.13 trillion rupees ($170.36 billion) in 2024-25, much lower than economists' estimate of 15.6 trillion rupees.
 

Prasanna said the lower fiscal deficit and gross borrowing for the next financial year is a major positive for now.
 

The government is clearly showing an intent towards fiscal consolidation and even in case of a shortfall in revenue collections, it could control expenditures to prevent "a slip up in fiscal", he said.
 

Bond yields typically rise as government borrowings for the new financial year begin, but that may not be the case this time around as the demand-supply dynamics are quite favourable since the sovereign debt will also be included in global bond indices from June.
 

Prasanna called it "an additional feature" for fiscal 2025.
 

"We would also have inflows from index inclusion and, with expectations of around $20 billion to come in, nearly one-sixth of the net borrowing would be taken care of.