Fiscal Deficit Target Boosts Bonds

In the run-up to the Union Budget 2023-24, the market chatter was about potential changes to the long-term capital gains tax. The holding period for stocks and bonds is one year. The market is relieved. Let’s now look at the developments from the bond market perspective. Market Standpoint Of the many facets of the Union Budget, the one most keenly watched by the bond market is the fiscal deficit. In every budget, the government projects the income and expenditure for the next financial year and the deficit. It also gives the estimates for funding the deficit, largely through the issuance of bonds, popularly referred to as government securities (G-Secs), for borrowings from the market. The higher the deficit, the higher the quantum of borrowing from the market, which means more supply of fresh bonds. Bond prices and interest rates move inversely; when interest rates rise, bond...