MUMBAI: Indian government bonds snapped three sessions of losses on Friday, helped by gains in the rupee with the borrowing numbers for the next fiscal year to provide direction for debt.
Finance Minister Palaniappan Chidambaram will detail gross borrowing for the fiscal year beginning in April in his interim budget on Monday. For a preview, see
The budget will be the current government's last financial statement ahead of the general elections due by May.
Chidambaram is widely expected to meet his fiscal deficit target of 4.8 percent for the current fiscal year, but analysts are closely watching how he juggles subsidies and spending to achieve it.
Bond dealers are expecting gross borrowing to be in a range of 5.8-6.4 trillion rupees, based on the government's previously outlined fiscal deficit target of 4.2 percent for 2014/15.
J.P.Morgan said it expects gross borrowing to be 6.25 trillion rupees.
"Our baseline expectation for the outgoing finance minister is to meet or even better market expectations from this budget, but any upside surprise with lower borrowing will quickly be written off as political expediency," analyst Venkatesh Sivaraman wrote in a note.
"Thus the knee-jerk risk is asymmetric as any borrowing number higher than 6.5 trillion rupees could introduce some negative uncertainty, though the likelihood of that scenario is very low," he said.
India's wholesale price-based inflation eased to an eight-month low in January as food prices moderated, offering some relief to policymakers who have long battled to get a handle on surging prices.
But in a worry for new Reserve Bank of India chief Raghuram Rajan, core WPI inflation inched up to 3 percent last month, which analysts said was its highest level since April 2013.
The rupee strengthened to its highest level in three weeks on Friday, rising for a second straight week, tracking gains in the domestic share market and following a sharper-than-expected fall in wholesale price inflation.
The benchmark 10-year paper closed lower 6 basis points at 8.81 percent. It rose to 8.89 percent during the session, its highest since Dec. 30. For the week, yields were up 7 bps.
In the overnight indexed swap market, the benchmark five-year swap rate closed down 1 bp at 8.46 percent, while the one-year rate ended down 1 bp at 8.70 percent.
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