MUMBAI: Indian government bond yields were marginally higher on Friday, ahead of a weekly debt auction later in the day and the announcement of the federal budget next week.
The benchmark 10-year yield was at 6.9738% as of 10:00 a.m. IST, following its previous close of 6.9674%.
New Delhi aims to raise 310 billion rupees ($3.71 billion) through a bond sale, including 200 billion rupees of the benchmark note.
“The cutoff for benchmark would decide the near-term course for yields, but going into the budget we are not anticipating break of 6.95% or 6.98%,” a trader with a state-run bank said.
The federal government will announce its budget for the full year on July 23.
The focus will be on the fiscal deficit target and gross borrowing figures.
A Reuters poll predicts median forecasts for the fiscal deficit target at 5.1% of gross domestic product and the gross borrowing at 14.13 trillion rupees, the same as February’s interim budget.
However, market participants believe the government has room to cut borrowing by around 500 billion rupees following a better-than-expected surplus transfer from the central bank and strong revenue collections.
Madhavi Arora, an economist at Emkay Global Financial Services expects a cut of around 400 billion rupees in net borrowing as a rollover of excess cash surplus is likely to help reduce net short-term borrowing.
India bonds not reacting to strong domestic growth, yields little changed
Meanwhile, the Reserve Bank of India said on Thursday that the economy’s natural rate of interest has increased since the pandemic and will rise further.
It estimated that the natural rate was 1.4%-1.9% in January-March 2024, higher than 0.8%-1% in October-December 2021, the last time it made an estimate.
Separately, the 10-year US yield was around 4.20% in Asian hours as weaker economic data added weight to expectations that the Federal Reserve will start its interest rate easing cycle from September.
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