INDIA BONDS-India bond yields dip for third month as budget optimism triggers buying

Credit: REUTERS/Vivek Prakash

By Dharamraj Dhutia

MUMBAI, Jan 31 (Reuters) - Indian government bond yields started 2024 with an easing bias, with yields witnessing their third consecutive monthly fall in January, as optimism over a fiscally prudent Union Budget announcement aided investor sentiment.

India's benchmark 10-year yield IN071833G=CC ended at 7.1442%, following its previous close of 7.1570%. The yield eased three basis points this month, after falling 8 bps and 10 bps in November and December respectively.

"Market is going (into) the budget with consensus that fiscal consolidation path will remain and headline borrowing figure should be roughly closer to this (year's figure). Recent market rally suggests that we are positioned for a positive outcome," said Churchil Bhatt, executive vice president at Kotak Mahindra Life Insurance.

India is due to announce the federal budget for the new financial year on Thursday, and the government is likely to keep its gross market borrowing for fiscal 2025 close to the current fiscal year's level of 15.43 trillion rupees ($185.82 billion), two sources told Reuters.

Indian investors have also increased their positions in longer-duration bonds as they anticipate the budget to be fiscally conservative with no pre-election spending surprises.

A Reuters poll predicted the government would target fiscal deficit as a percentage of gross domestic product at 5.30% for fiscal 2025 from 5.9% this fiscal year.

Traders also pointed out that the Federal Reserve's monetary policy decision is likely to be a key trigger for the rest of the current financial year.

The decision is due after Indian market hours and while status quo is expected on rates, commentary from Chair Jerome Powell will be key to gauge the timing of rate cuts.

The 10-year U.S. yield US10YT=RR was inching downwards towards the 4% handle, even as traders have trimmed down bets on the timing and pace of rate cuts in 2024. The odds of a rate cut in March now stand at around 41%, down from 88% last month, according to the CME's FedWatch Tool.

($1 = 83.0353 Indian rupees)

(Reporting by Dharamraj Dhutia; Editing by Janane Venkatraman)

((Dharamraj.dhutia@tr.com))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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