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Bond prices climbed recently after the Finance Minister reaffirmed that the borrowing strategy will stay unchanged and the fiscal deficit target of 4.4% of GDP remains within reach. The 10-year benchmark yield eased slightly from its previous week's close. Market players anticipate a smoother supply plan, with hopes that long-dated borrowing may ease in the second half. Swap rates edged lower as fiscal concerns abated, while attention turns to upcoming inflation data both domestically and in the U.S. Supportive global cues and central bank measures also helped ease market tension.
Government bond prices improved, as investors felt reassured by the finance minister's firm statement that both the borrowing schedule and the fiscal deficit goal of 4.4% of GDP are intact. The yield on the 10-year benchmark bond (IN063335G=CC) traded around 6.450 % in the morning session, compared with about 6.465 % at the previous close. The slight decline in yield reflected firmer demand for government securities. Advertisement
The Finance Minister said the government remains on track to meet its fiscal deficit of 4.4 % of GDP for the ongoing financial year. Market participants, however, continue to watch for any refinements in the borrowing strategy to improve supply-demand balance. Banks and traders have requested that the central bank lower the share of ultra-long dated bonds and trim weekly auction sizes, which would help spread out borrowing requirements through the year ending in March.
Analysts at Barclays noted that a possible change in the mix of borrowings in the second half of the fiscal year could compress spreads across maturities. They also indicated that fears of additional borrowing may fade and that demand could improve as the year progresses. The bank recommended long positions in the 10-year bond, expecting yields to ease further across the curve.
Overnight index swaps also reflected reduced fiscal concerns. The one-year OIS remained at about 5.485 %, while the two-year rate eased to 5.447 % and the five-year fell to nearly 5.695 %. Traders are now focused on the upcoming inflation releases in both India and the U.S., which are expected to influence interest rate expectations and bond market direction.
Source- Reuters
5th Jun, 2025
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