Drop in US peers push Indian bond yields lower ahead of budget

MUMBAI: Indian government bond yields eased on Thursday, with the benchmark yield hitting an over four-month low, triggered by a drop in US Treasury yields, while the market’s focus will remain on the domestic federal budget announcement.

India’s benchmark 10-year yield was at 7.1267% as of 10:00 a.m. IST, compared with its previous close at 7.1442%.

Earlier in the day, it slipped to 7.1209%, the lowest since Sept. 22.

The benchmark yield dipped 3 basis points (bps) in January, after falling 8 bps and 10 bps in November and December, respectively.

“The only worrying factor of elevated US yields is also taken care of and traders are now awaiting the budget.

Any positive surprise on the borrowing number could see a break of the super-crucial 7.12% level for the benchmark yield,“ a trader with a private bank said.

Federal Reserve Chair Jerome Powell, in a sweeping endorsement of the strength of the US economy, said on Wednesday that interest rates had peaked and would move lower in the coming months.

He, however, added that inflation is still too high and ongoing progress in bringing it down is not assured.

India bond yields flat as traders eye Fed meet, Union Budget

This has led to further trimming of the odds for a rate cut in March to around 35%, from around 48% before his comments. However, the odds of 150 bps of rate cuts for 2024 have risen sharply, which is also aiding investor sentiment.

Meanwhile, India is due to announce the federal budget at 11:00 a.m. IST.

The government is likely to keep its gross market borrowing for fiscal 2025 close to the current year’s level of 15.43 trillion rupees (about $186 billion), two sources told Reuters.

Indian investors have also increased positions in longer-duration government bonds in the run-up to the budget as they anticipate the government to present a fiscally prudent financial plan, with no major pre-election spending surprises.

A Reuters poll predicted the government would target a fiscal deficit of 5.3% of gross domestic product for fiscal 2025, compared with 5.9% this year.