Indian government bond yields are expected to open higher on Monday after the federal budget showed the gross borrowing for the next fiscal year was above market estimates, but hopes of a rate cut by the central bank will likely cap the upmove.
The 10-year bond yield is likely to move between 6.66% and 6.73%, a trader with a private bank said, compared with the previous close of 6.7001%.
“The initial reaction should be a higher opening for yields, as the gross borrowing is higher… but with the steps that the new central bank regime has undertaken, an interest rate cut is the next logical move, so the rise should be bought into.”
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New Delhi will target a narrower fiscal deficit of 4.4% of gross domestic product for fiscal year 2025-26, down from a revised 4.8% for the current year, Finance Minister Nirmala Sitharaman said in the budget on Saturday.
However, the government increased gross borrowing to 14.82 trillion rupees ($170.52 billion), compared with 14.01 trillion rupees in the current year.
Economists in a Reuters poll had pegged gross borrowing at 14.28 trillion rupees.
India bond prices are expected to open with a negative bias, though it will likely be capped with a pickup in the Reserve Bank of India’s secondary market bond purchases, Nuvama said.
The RBI more than doubled its purchases of bonds in the secondary market, with net bought bonds worth 208.50 billion rupees in the week ending Jan. 24, after purchases of 101.75 billion rupees in the prior week.
Last week, the RBI bought bonds worth 200 billion rupees through an open market auction, and the benchmark bond accounted for one-fourth of that purchase.
The RBI monetary policy decision is due on Feb. 7, amid a widespread expectation of a 25 basis point rate cut.
KEY INDICATORS:
** Brent crude futures were 0.9% down at $76.05 per barrel, after easing 0.1% in the previous session
** Ten-year U.S. Treasury yield at 4.5205%; two-year yield at 4.2488%
** RBI to conduct 1-day variable rate repo auction for 750 billion rupees ($1 = 86.9120 Indian rupees)
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