Bond Yields Resume 4-Day Losing Streak On Fiscal Deficit Optimism
Bond yields edge lower.
Bond yields edged lower on Wednesday on continued optimism over the cut in the government’s borrowing program for the first two months of 2017. The 10-year benchmark bond yield resumed its fall after a brief respite on Tuesday.
The benchmark yield ended 6 basis points lower at 6.38 percent on Wednesday compared to 6.44 percent on Tuesday, recovering from the day’s low of 6.36 percent towards the end of the trading session. Strength in the Indian rupee also aided the sentiment on bonds prices. The rupee closed 68.04 to the dollar as against 68.33 on Tuesday.
The optimism among market participants was magnified after a Deutsche Bank report sounded positive on the possibility that the government would meet its fiscal deficit target. The finance minister clarified, after the bond markets shut for the day, that the government will exceed revenue target for direct and indirect taxes for the current financial year.
The government’s plans to lower borrowings in January-February 2017 underscores their optimism on this year’s fiscal math. This is not without reason. Despite the recent demonetisation drive and potential delay in the rollout of the Goods and Services Tax, the financial year 2016-17 fiscal deficit target of 3.5 percent of GDP is likely to be met. Fiscal consolidation is likely to stay on track next year, despite the risk that the pace of tightening might slow. Details on the fiscal incentives announced on December 31 are also likely to be included in the 2017 Union Budget out in early-February.Deutsche Bank Report
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