Govt bond yields likely to be flattish ahead of fresh supply of debt

Indian government bond yields are likely to be flattish in opening trades on Friday ahead of fresh supply of debt via a weekly auction, while next week's federal budget announcement remains the main trigger for the market.
 

The benchmark 10-year yield is likely to move in a 6.95 per cent-6.98 per cent range till the auction, after closing at 6.9674 per cent on Thursday, a trader with a private bank said.
 

New Delhi aims to raise Rs 31,000 crore ($3.70 billion) through the bond sale, which includes Rs 20,000 crore of the benchmark note.
 

"We may not see much action before the benchmark bond sale, and if the cutoffs are aggressive, there may be an attempt to break the 6.95 per cent barrier after the results," the trader said.
 

The federal government will announce its budget for the full year on July 23, and focus would be on the fiscal deficit target and gross borrowing figure.
 

A Reuters poll found the government remained committed to upholding pre-election targets, with median forecasts for the fiscal deficit target at 5.1 per cent of gross domestic product and the gross borrowing at Rs 14.13 trillion, the same as February's interim budget.
 

Still, many market participants have opined that the central government has room to cut borrowing by around Rs 50,000 crore following a better-than-estimated surplus transfer from the central bank and strong revenue collections.
 

The Reserve Bank of India said on Thursday the economy's natural rate of interest has increased since the pandemic and will rise further, and estimated the natural rate was 1.4-1.9 per cent in January-March 2024, higher than the 0.8-1.0 per cent in October-December 2021, the last time it made an estimate.
 

The 10-year US yield was around 4.20 per cent in Asian hours, as weaker economic data added weightage to expectations that the Federal Reserve will start its interest rate easing cycle from September. The market has also has factored in 63 basis points of cuts in 2024, according to the CME FedWatch Tool.
 

KEY INDICATORS:
 

** Brent crude futures were 0.6 per cent lower at $84.60 per barrel, after being little changed in the previous session

** Ten-year US Treasury yield at 4.2118 per cent, two-year yield at 4.4925 per cent
 

** India to sell sovereign bonds worth Rs 31,000 crore

** RBI to set underwriting fees for Rs 31,000 crore of sovereign bond auction
 

** RBI to conduct 3-day variable rate reverse repo for Rs 50,000 crore


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