MUMBAI: Indian government bond yields continued to struggle for direction on Wednesday, a day after the release of the federal budget that did little to either substantially cheer or disappoint bond market participants.
The benchmark 10-year yield was at 6.9673% as of 10:00 a.m. IST, compared with its previous close of 6.9695%.
“With budget failing to spur any large action, bond traders are back to the theme of wait-and-watch, and benchmark yield is expected to remain in a narrow range of 6.95%-6.98% at least till the end of this week,” a trader with a state-run bank said.
The government reduced its fiscal deficit target for the current financial year to 4.9% of gross domestic product from 5.1% in the interim budget. It aims to reach a deficit of below 4.5% for 2025-26.
It also reduced planned gross borrowing to 14.01 trillion rupees ($167.40 billion), a marginal cut of 120 billion rupees against market expectations of 500 billion rupees.
The government had already reduced borrowings from treasury bills, small saving funds and other non-cash sources by around 2 trillion rupees, while increasing the support from cash drawdown by 1.4 trillion rupees.
India benchmark bond yield flat in run up to budget; focus on FY25 borrowing plan
This shift in funding strategy makes sense, given elevated government cash balances with the central bank, strong demand for bonds, and a very flat yield curve, ANZ economists Dhiraj Nim and Sanjay Mathur said.
Moody’s Ratings and Fitch Ratings believe the reduction in government debt would be beneficial for India’s credit profile.
Additionally, the government assigned large allocations for job creation and regions run by its key coalition partners, aimed at cementing the coalition.
The budget is unlikely to move the needle for the Reserve Bank of India’s monetary policy committee, said Nomura, adding that the focus on fiscal consolidation while prioritising growth is likely to be viewed as continued policy stability and should not warrant a rethink.
Meanwhile, the 10-year U.S. yield continued to remain around the 4.25% mark, before the Federal Reserve policy decision due on July 31.
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