MUMBAI: Indian bond yields edged lower while the rupee strengthened on Tuesday morning with traders awaiting the annual budget presentation by the finance minister Nirmala Sitharaman in Parliament at 0530 GMT.
Traders are expecting the government to announce a slightly lower gross borrowing number than previously anticipated after it converted bonds worth 1.197 trillion rupees ($15.96 billion) with the central bank, switching papers maturing in coming years for longer-dated ones.
India plans to raise spending on infrastructure in the budget to put the economy on a firmer footing, but fiscal constraints leave little chance of concessions for households hurting from the pandemic, officials said.
The benchmark 10-year bond yield was trading down 1 basis point at 6.67%, after having posted its biggest single-session fall since July 13, in the previous session.
The partially convertible rupee was trading at 74.43/44 per dollar versus its previous close of 74.61, aided by gains in the domestic share market.
Indian shares rose in early trade in the run-up to the federal budget.
An uptick in global crude oil prices, however, which can push up the import bill, hurt the rupee and trigger higher imported inflation, was likely to keep gains in check.
Oil prices rose, trading near seven-year highs hit last week, as investors bet supplies will stay tight, with a limited production hike by major oil producers and a strong post-pandemic recovery in fuel demand.
"The budget will be the focus, especially if they announce something on the global bond inclusion or some form of tax exemptions. We can see yields fall much more if that comes through," a senior trader at a private bank said.
India's inclusion in the global bond index will widen the investor base for government bonds and ease pressure on domestic banks.