India 10-year bond yield dips to two-week low on easing GST-led fiscal concerns

MUMBAI: Indian government bond yields fell on Thursday, with the 10-year benchmark yield dropping to its lowest level in two weeks, as the government estimated the net revenue loss from tax revision to be lower than what the market had feared.

The benchmark 10-year bond yield settled at 6.4934%, lowest since August 20, compared with Wednesday’s close of 6.5430%.

Late Wednesday, India cut the GST rates on hundreds of items to spur consumption.

Federal and state authorities pegged the resulting revenue loss at 480 billion rupees ($5.46 billion), far below market estimates of about 1 trillion rupees, easing concerns that the cuts would widen fiscal deficit and increase government borrowing.

This estimated revenue loss is about 13-14 bps of the financial year’s projected GDP, said Abhishek Bisen, fixed income head at Kotak Mahindra AMC.

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“We don’t expect any major impact on central government finances and expect the projected fiscal deficit of 4.4% to be maintained for FY26,” Bisen said.

Market participants, however, are still calling for central bank intervention to support bond prices.

The Reserve Bank of India met banks this week to discuss the October-March borrowing programme, where lenders suggested switching to a uniform pricing method for state bond auctions to prevent sharp spikes in cutoff yields seen in recent sales.

Traders have also urged the RBI to cut the share of ultra-long federal bonds in the supply schedule and reduce weekly auction sizes, which could stretch the borrowing calendar until next March.

Rates

India’s overnight index swap (OIS) rates fell 2 to 4 bps on Thursday as fiscal fears eased on lower-than-expected revenue loss following GST cuts.

The one-year OIS rate was down by nearly 2 bps at 5.51%, while the two-year OIS rate ended over 3 bps lower at 5.4675%. The five-year OIS rate shed over 4 bps to end at 5.7450%. ac