MUMBAI: Indian government bond yields plummeted this week, with the benchmark yield posting its biggest drop in 15 months, as investors cheered a fiscally-prudent federal budget and as US Treasury yields nosedived.
India’s benchmark 10-year yield ended at a 7-month low of 7.0555%, against the previous close of 7.0583%.
The yield fell 12 basis points this week, the sharpest decline since Nov. 11, 2022.
“The budget has provided a positive outlook and a kicker for bond market as the supply is going to be at same levels whereas the expected demand is more on account on global bond (index) inclusion,” VRC Reddy, treasury head at Karur Vysya Bank, said.
“It is a Goldilocks period for the bond market and time to play with duration, possible to see the 6.80% levels in the first half of this calendar year.”
India’s government, in its interim budget for the next fiscal year, said that it aims to reduce the fiscal deficit to 5.1% of gross domestic product, from a downwardly revised 5.8% for this financial year.
Drop in US peers push Indian bond yields lower ahead of budget
It will aim to gross borrow 14.13 trillion rupees ($170.50 billion) via bonds in the next fiscal that starts April 1, sharply below expectations and also lower than current year’s planned borrowing. On Friday, a bond auction saw good demand.
Traders now await the Indian central bank’s decision, due on Thursday, with most expecting no change in rates.
The plan to tighten fiscal policy could push the country’s central bank to ease its stance on liquidity, Neeraj Gambhir, the treasury head of Axis Bank, said on Friday, but he does not expect any immediate action next week.
Meanwhile, US Treasury yields dropped this week amid rising safe-haven demand, with the 10-year yield falling over 25 basis points to trade below 3.90%.
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