Mumbai: India’s 10-year benchmark sovereign bond yield retreated Thursday, closing at 6.951%, following budgetary announcements that sought to narrow the fiscal gap through judicious use of the bumper surplus the government received from its money manager – the central bank.
The yield on the 10-year benchmark government security has eased 23 basis points so far in 2024. Bond yields stood at 6.96% on Wednesday. One basis point is 0.01%.
A fall in government bond yields lowers borrowing costs across the economy as sovereign debt yields are the benchmarks for determining the price of corporate borrowing. Bond yield and prices move inversely.
Harnessing windfall gains that arrived in the form of a surplus dividend transfer from the Reserve Bank of India (RBI) after the February vote on account, finance minister Nirmala Sitharaman said in her budget speech Wednesday that the Centre is aiming for a fiscal deficit target of 4.9% of GDP in FY25. That’s lower than the 5.1% target proposed in the interim budget in February.
The government also reduced its gross borrowing to ₹14.01 lakh crore and net market borrowing to ₹11.63 lakh crore in this fiscal.
“Overall, the fiscal deficit is down, plus they (government) have given forward guidance, giving the confidence that for some time the government will keep the overall borrowing and deficit in check giving long-term confidence to the market. So, there will now be a gradual drift toward lower yields,” said Naveen Singh, head of trading at ICICI Securities Primary Dealers.
Bond dealers expect yields to touch 6.90% by the end of August.
While steady foreign fund flows have kept sovereign bond yields in a tight range, dealers do not see much room for a sharp fall in long-term yields until the RBI shows signs of cutting interest rates.
Counting June 28, the day Indian bonds formally began featuring on a JP Morgan index, foreign investment in the fully accessible route (FAR) category has risen around $1.9 billion, CCIL data showed.
