India bond yields a tad up before budget, 10-year yield posts monthly decline
Source: Live Mint
MUMBAI, Jan 31 (Reuters) – Indian government bond yields ended marginally higher on Friday as market participants await the annual budget for directional triggers.
The 10-year benchmark bond yield, however, eased in January, falling 6 basis points, while also logging its second decline in three months.
It ended at 6.7001% on Friday, compared with its previous close of 6.6803%.
Economists polled by Reuters expect New Delhi to stick to a fiscal deficit target of 4.5% of gross domestic product (GDP) for the financial year starting in April when it presents the budget on Feb. 1.
They expect gross borrowing of 14.28 trillion rupees ($164.88 billion), up from the 14.01 trillion rupees for the current fiscal year.
The marginal increase will be easily absorbed given improving banking system liquidity and strong inflows into insurance and pension funds, investors said, adding that the market is heavily positioned ahead of the budget.
“While insurers and pension funds are positioned at the longer end of the curve, based on their portfolio strategy, trader positioning seems to be in the 5 to 10 year segment,” said Ketan Parikh, head of fixed income at ICICI Prudential Life Insurance.
The Reserve Bank of India kick-started its mega liquidity infusion package on Thursday with debt purchases of 200.20 billion rupees. Yields eased after the RBI favoured longer-duration bonds.
The central bank will infuse around 440 billion rupees through dollar/rupee buy/sell swaps, the first leg of which will be settled on Tuesday. This will be followed by a 56-day variable rate repo on Feb. 7 and debt purchases worth 400 billion rupees later that month.
The central bank devolved 10-year green bonds at a debt auction on Friday, its second such move in two months, indicating the government will not sell these bonds at higher yields.
Still, investors expect green bonds to be a part of next fiscal year’s borrowing programme, with ICICI Prudential’s Parikh noting it is highly probable the issuance will be focused on the 30-year segment. ($1 = 86.6070 Indian rupees) (Reporting by Dharamraj Dhutia Editing by Sonia Cheema)
