MUMBAI: Indian government bonds fell further on Thursday as traders cut positions before new debt supply, while concerns over the rising fiscal burden weighed on sentiment.
The benchmark 10-year bond yield settled at 6.5278%, the highest level since March 28, after ending at 6.4969% on Wednesday. The 10-year bond yield has risen nearly 13 basis points so far this week.
Bond yields move inversely to prices.
Traders trimmed positions ahead of Friday’s 360 billion rupee ($4.14 billion) bond sale, making room on their books for the weekly supply.
Demand stayed weak in the local debt market as traders worried planned tax cuts would lead to a wider fiscal deficit and a heavier debt supply.
While the market is eagerly awaiting clarity from the government on how it intends to offset the revenue losses, India’s federal government has not yet quantified the loss to the exchequer, state ministers said.
The GST council meeting is expected in September or October, before the Hindu festival of Diwali.
“Once markets factor in minimum fiscal slippage, growth slowdown and low inflation, we will see the demand coming back in the fixed income markets,” said Kruti Chheta, a debt fund manager at Mirae Asset Management.
Meanwhile, the minutes of the Reserve Bank of India’s latest policy meeting did little to ease market jitters, even though the tone was seen as slightly dovish, traders said.
Rates
India’s overnight index swap (OIS) rates were little changed on Thursday, as traders awaited Fed Chair Jerome Powell’s commentary at Jackson Hole symposium.
The one-year OIS rate closed flat at 5.52% while the two-year OIS rate ended slightly higher at 5.4850%. The liquid five-year OIS rose nearly 1 bp to end at 5.7250%.
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