India bonds eye fiscal clarity for strong directional move

MUMBAI: Indian government bond yields are expected to be largely steady as a crucial meet to discuss a potential reduction in goods and services tax begins.

The benchmark 10-year bond yield is expected to trade in the 6.53%-6.58% range, after ending at 6.5658% on Tuesday, a trader with a private bank said.

“There is increased volatility in bonds since the last few days,” the trader said, “Any firm directional clarity will only emerge after the government’s tax decision and whether the central bank chooses to undertake any action.”

India’s 10-year bond yield is up 17 basis points after the government announced plans to cut goods and services tax (GST) rates on August 15, fuelling concern that it could borrow more in the second half of the year. States have broadly accepted the changes but are wrangling to protect revenues.

The GST Council is scheduled to meet on Wednesday and Thursday, with more clarity expected after the meeting. States are getting hit as their borrowing costs have shot through the roof over last two weeks.

Several top banks are nearing their internal limits for such investments and communicated this to the central bank last week.

New Delhi’s debt auction on Thursday will further test investor appetite as the government aims to raise 250 billion ($2.86 billion).

Meanwhile, discussions between the central bank and market participants have started and will continue over coming days over second half borrowing programme, traders said.

The meeting comes at a time when traders have been calling for the Reserve Bank of India’s intervention to support bonds.