Indian bond yields seen little changed ahead of budget announcement

MUMBAI: Indian government bond yields are expected to remain largely unchanged in early trading on Wednesday as market participants await the federal budget announcement due later in the day.

The benchmark 10-year yield could move in the 7.26%-7.45% range, a trader with a private bank said, after closing six basis points lower at 7.3438% on Tuesday, and posting its biggest single-session fall in two months. “There was short covering on Tuesday, following the new 10-year bond announcement, and that aided appetite across the curve,” the trader said.

“If there is any positive surprise in terms of lower-than-expected borrowing, we could see the benchmark yield touching the crucial 7.26% levels.” Finance Minister Nirmala Sitharaman will present the Union budget at 11:00 a.m. IST.

The government is likely to keep its gross market borrowing below 16 trillion rupees ($195.78 billion) for the next year as it does not want to destabilise the bond market with negative surprises, two sources close to the deliberations said. STCI Primary Dealer expects the government to gross borrow a record 16.4 trillion rupees with a fiscal deficit target of 5.9% of gross domestic product.

“Gross borrowings below 16 trillion rupees will be taken as a positive by the market and we expect the yield range to be between 7.20%-7.45% in the near term,” the bond house said in a note. Meanwhile, the government will sell bonds worth 280 billion rupees on Friday, including 120 billion rupees worth of the new 10-year paper, which will replace the existing benchmark in the coming weeks.

Indian bond yields may rise on budget caution, heavy state debt sale plan

The new 10-year bond is likely to witness a strong demand despite the government being expected to announce an elevated borrowing schedule, traders said. The finance ministry’s annual Economic Survey, released on Tuesday, forecast a growth of 6% to 6.8% year-on-year in the next fiscal, down from 7% projected for the current year, while warning about the impact of a global slowdown on exports.