Govt's 10-year benchmark bond yield dips to 2-year low; auction demand key

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Indian government bond yields declined early in the session on Friday, with the 10-year benchmark bond yield falling to its lowest level in over two years, as underlying sentiment remained bullish with favourable demand-supply dynamics.
 

Further moves in yields would be dependent on investors' response to fresh debt supply, due later in the day.
 

The benchmark 10-year yield was at 6.9357 per cent as of 10:00 a.m. IST, compared with its previous close of 6.9512 per cent.
 

Earlier in the day, the yield had eased to 6.9344 per cent lowest level since April 8, 2022.
 

"Before the budget sentiment was bullish, and we are back to that aspect, as given the current supply and broad fundamentals, yields have a strong chance to decline rather than rise from this point," a trader with a foreign bank said.
 

Meanwhile, New Delhi will raise Rs 35,000 crore ($4.18 billion) through the sale of bonds later in the day, and cutoff yields could drive the market after the result.
 

At the budget announcement, the government reduced its fiscal deficit target for the current financial year to 4.9 per cent of gross domestic product (GDP), while reducing gross borrowing marginally to Rs 14.01 trillion.
 

The government lowered borrowing through Treasury bills in a manner which will result in a net inflow of Rs 50,000 crore into the banking system.
 

The government aims to manage its cash position by tweaking Treasury bill sales, if needed, instead of resorting to changes to the bond auction schedule, two government officials told Reuters earlier this week.
 

Traders have said that demand for government bonds may pick up after the central bank released draft guidelines to bolster the liquidity resilience of lenders.
 

These norms when come into effect will require banks to maintain a higher proportion of high-quality liquid assets (HQLA), that includes government bonds, and demand could get a further boost.
 

The 10-year US yield remained stuck around the 4.25 per cent mark, as a stronger growth reading had no impact on rate cut expectations.


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