Govt bond yields fall for 4th consecutive month as favourable budget aids

Indian government bond yields ended marginally higher on Thursday, but posted a fourth consecutive monthly decline, as the fiscally prudent budget for the next financial year turned demand-supply dynamics favourable.
 

The benchmark 10-year yield ended at 7.0764%, after closing at 7.0663% on Wednesday. The yield declined seven basis points in February, after falling 21 basis points in November-January.
 

"Bond yields eased this month even as U.S. yields have risen as gross supply for the next financial year undershot market expectations by a large margin," said Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership.
 

India aims to reduce the fiscal deficit to 5.1% of gross domestic product for the next fiscal and aims to gross borrow 14.13 trillion rupees ($170.46 billion) via bonds, sharply below market expectations and current year's borrowing.
 

The cut in borrowing target turns demand-supply dynamics favourable, and beyond the middle of this calendar year, benchmark bond yield could touch at least 6.75% if not lower, ICICI Bank's head of treasury B. Prasanna said.
 

Traders also await India's economic growth data for October-December due after market hours. Growth likely moderated to 6.6% year-on-year as government spending slowed, while growth in the agriculture sector remained muted, a Reuters poll showed.
 

Asia's third-largest economy grew 7.8% and 7.6% in the first two quarters of the current fiscal year. The economy is expected to grow 7.3% for the full fiscal year, giving comfort to the Reserve Bank of India, to focus on meeting the 4% inflation target on a sustainable basis.
 

Meanwhile, U.S. Treasury yields remained elevated, with the 10-year in a 4.25%-4.30% range, as odds of a cut in May eased to 20% from around 32% last week and 88% last month, according to the CME FedWatch tool.
 

The focus is also on U.S. personal consumption expenditures (PCE) price index data - the Fed's favoured measure of inflation - due at 1330 GMT.