MUMBAI, May 24 (Reuters): Indian government bond yields declined on Friday, with the benchmark 10-year bond yield logging its fifth straight weekly fall, as record surplus transfer by the central bank is expected to aid the government's fiscal position.
The benchmark 10-year yield ended at 6.9988 per cent, following its previous close of 6.9919 per cent. The yield has eased by an aggregate of 23 basis points over the last five weeks.
"Sentiment is positive for bonds and we may see the 10-year bond yield easing to 6.95 per cent, but any further sustained move below this level may be unlikely for now," said Vijay Sharma, senior executive vice president at PNB Gilts.
Earlier this week, the Reserve Bank of India's (RBI) board approved the transfer of a record 2.11 trillion rupees ($25.41 billion) as surplus to the government for the fiscal year 2024.
The government's fiscal position is expected to strengthen after a better-than-estimated dividend transfer and could further reduce some supply pressure, aiding the demand-supply dynamics, traders have said.
The government is open to buying back more bonds and cutting borrowings through Treasury bills as part of its short-term cash management, a source said. New Delhi has already cut the supply of Treasury bills by 600 billion rupees till June.
India will decide on lowering both fiscal deficit and market borrowing in the July budget after the formation of a new government, a source familiar with the matter told Reuters.
Meanwhile, Axis Mutual Fund is increasing its exposure to longer-duration government bonds ahead of the inclusion of Indian debt in global indexes and as macroeconomic fundamentals and demand-supply dynamics are favourable, said Devang Shah, head of fixed income at Axis Mutual Fund.
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