Profit Booking Pushes Up Bond Yields Despite Cut In Government Borrowings
Cut in government borrowings reflects the government’s comfortable financial position
Government bond yields reversed an early-session decline to close higher on Tuesday as traders booked profits after a four day rally in bond prices. Bond yields, which move inversely to prices, had fallen over 20 basis points over the last four trading sessions till Monday.
On Tuesday, the benchmark 10-year bond yield opened the session lower at 6.31 percent after the government announced a cut in its borrowings program. The government will sell Rs 66,000 crore in debt in January and February, the central bank said in a statement on Monday evening, as against the previously budgeted amount of Rs 84,000 crore.
Yields fell in response but later rose as traders booked profits and ended the session 4 basis points above the previous day’s close. An 11 paise fall in the Rupee to 68.33 against the US dollar also impacted sentiment.
For the day, the benchmark yield closed at 6.44 percent compared to its previous close of 6.40 percent on Monday.
The markets now await the borrowing plan for next fiscal, which would provide sustainable direction to bond yields.
Reduction in the market borrowing plan definitely reflects that government finances are in good shape ahead of the Budget. With this, fiscal deficit numbers looks very much achievable. Revenues are quite buoyant for the government as reflected in tax numbers till November, though some hiccup in terms of tax collection could be seen on account of demonetisation. Going forward, the fiscal deficit budget projections would assume importance and this would provide further direction.Manish Wadhwan, Head of Interest Rates, HSBC India
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