The 10-year benchmark bond yield in India dropped to a two-year low due to new liquidity rules imposed on banks by RBI.
The 10-year benchmark bond yield in India fell to its lowest level in over two years, reflecting bullish sentiment among traders. The central bank's new rules for better liquidity management at banks to avoid excessive run-off of retail deposits impacted the yields.
The benchmark 10-year yield edged to 6.936 per cent weekend down from 6.96 per cent last week. Earlier on Friday, the yield had decreased to 6.9344 per cent.
Debt market participants feel yields have a strong chance to decline rather than rise given the current supply and broad fundamentals. In Budget 2024-25, the government reduced its fiscal deficit target to 4.9 per cent of GDP for the current FY. It lowered borrowing through Treasury bills, creating ground for a net inflow of Rs 50,000 crore into the banking system.
The indicative yield for T-bills currently stands at 6.71 per cent, 6.84 per cent, and 6.83 per cent for three-month, six-month, and 364-day durations, respectively. In the 1-2 year tenure, 6.99% GS 2026 indicates a yield of 6.81 per cent.
Moving on to longer tenures, 7.37% GS 2028 (4-5 year tenure) and the 7.10% GS 2034 (9-10 year range) show indicative yields of 6.83 and 6.93 per cent respectively.
Due to changes brought by the recent budget, investors may face a 10 per cent TDS deduction when investing in G-Secs and SDLs after October 1, 2024. This could lead to increased interest in other tax-efficient listed instruments.
Further, according to a Money control report, the government is considering discontinuing the issuance of Sovereign Gold Bonds (SGB) due to cost concerns. This is amidst it cutting customs duties on gold and silver in the Budget, which is expected to reduce demand for SGBs.
On the recent budget Murthy Nagarajan, Head-Fixed Income, Tata Asset Management said, "The fiscal stance of the 2024-25 budget aims to provide a positive stimulus to economic growth and build resilience to global challenges. As per the medium Term Fiscal consolidated road map, the net debt of the central government is expected to be 57 per cent of GDP. The government is targeting a fiscal deficit of 4.5 per cent or lower in the next financial year. The government is not giving further roadmap, due to global uncertainty and wants to retain the fiscal flexibility to respond to these events."
"This is a long-term positive as capital expenditure has been retained at Rs 11.11 lakh and revenue expenditure has been marginally increased. We may have a pleasant surprise, with borrowing lower than what is targeted. The ten-year yields may trade in the band of 6.90 to 7 per cent in the coming months."