MUMBAI: Indian government bonds declined in early trading on Monday, as debt supply continued to overshoot demand and market sentiment was weak on worries over fiscal slippage.
The benchmark 10-year bond yield was at 6.6072% as of 10:10 a.m. IST, against Friday’s close of 6.5678%.
The yield rose 19 basis points in August, its biggest monthly rise since September 2022. Bond yields move inversely to prices.
Bond market sentiment has taken a hit since the government announced plans on August 15 to cut the goods and services tax, a major revenue source, fuelling expectations of a higher fiscal burden and heavier debt supply.
India plans to lower the tax by October and has proposed a move to a two-rate structure of 5% and 18%, scrapping the 12% and 28% rates in place currently.
The GST Council meets on Wednesday and Thursday.
Large supply this week is weighing on bonds amid waning demand.
Indian states are set to raise 316.5 billion rupees ($3.58 billion) on Tuesday, which will be key to gauge demand after the last auction saw partial acceptance by states, traders said.
Meanwhile, India’s GDP growth data for the April to June quarter also surprised the market, expanding 7.8% year-on-year while economists polled by Reuters had pegged a growth of 6.7%.
“GST cuts, GDP data, and the continued debt supply, nothing has been in favour of the bond market lately,” a trader at a private bank said. The trader expects the uncertainty to continue till the Reserve Bank of India intervenes “in some way”.