Govt bond yields flat before debt sale; budget remains a key driver

Indian government bond yields trended sideways in the early session on Thursday ahead of a fresh debt supply on Friday and with eyes on this year's budget to be tabled next week.
 

The benchmark 10-year yield was at 6.9649 per cent as of 10:00 a.m. IST after closing at 6.9632 per cent in the previous session. Indian markets were closed on Wednesday for a local holiday.
 

Volumes are expected to remain subdued after heightened activity on Tuesday as all other fundamental factors are largely similar, a trader with a state-run bank said. "The last auction before the budget also remained critical." New Delhi aims to raise Rs 31,000 crore ($3.71 billion) through a sale of bonds, which includes Rs 20,000 crore of the benchmark note. The central bank will auction treasury bills worth Rs 20,000 crore later in the day.
 

 

Meanwhile, the federal government will announce the final budget for the current financial year on July 23, the key data points for fixed income market participants would be the fiscal deficit target and gross borrowing figure.
 

India has room to cut gross borrowing by Rs 50,000-75,000 crore following a better-than-estimated surplus transfer from the central bank and strong revenues, Neeraj Gambhir, head of treasury at Axis Bank said.
 

However, a Reuters poll found that the government remains committed to upholding pre-election targets, with median forecasts for the fiscal deficit target at 5.1 per cent of gross domestic product and gross borrowing at Rs 14.13 trillion, the same as February's interim budget.
 

The 10-year US yield stayed around a four-month low after top Federal Reserve officials cited progress in inflation easing closer to their 2 per cent target, setting the stage for rate cuts.
 

The market now expects the Federal Reserve to start the rate easing cycle in September and has factored in 64 basis points of cuts in 2024, according to the CME FedWatch Tool.
 

Still, rising bets of Donald Trump winning the US presidential race curbed a major fall in yields.


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