Bond yields may hold steady at start of event-heavy week

Government bond yields are anticipated to remain relatively unchanged on Monday, influenced by pivotal economic events such as the US Federal Reserve policy decision and the upcoming local Federal Budget announcement.

The benchmark 10-year yield is projected to hover within the 7.16-7.20 per cent range on Monday, following its previous close at 7.1760 per cent, as per a trader with a primary dealership.

"There was a slightly bullish bias last Thursday following robust demand at the weekly debt auction. 

However, considering the notable rise in oil prices and the impending Fed meeting and budget announcement, we anticipate that the 7.15 per cent threshold will likely hold," remarked the trader.

Bond yields experienced a slight easing after the government successfully raised Rs 33,000  crore ($3.97 billion) through a bond sale.

The benchmark bond witnessed robust demand from state-run banks in the last auction before the budget announcement scheduled for February 1.

Sources within the government indicated that the country may maintain its gross market borrowing for the fiscal year 2024/25 close to the current year's level as part of efforts to curb borrowings. 

Gross borrowing for the upcoming fiscal year is estimated to range between Rs 15 lakh crore and Rs 15.50 lakh crore, compared to the planned Rs 15.43 lakh crore for the current financial year.

Despite being an election year, with Prime Minister Narendra Modi seeking a rare third consecutive term, the government aims to reduce its fiscal deficit by at least 50 basis points. 

A Reuters poll also forecasts a decline in the fiscal deficit as a percentage of GDP to 5.30 per cent in 2024/25 from 5.90 per cent this fiscal year, with projected gross borrowing of Rs 15.60 lakh crore.
Meanwhile, US yields remained elevated as robust economic data led to a decrease in expectations regarding the timing and pace of Fed rate cuts in 2024. 

The odds for action in March currently stand at around 48 per cent, down from 87 per cent last month, according to the CME's FedWatch Tool.

(With Reuters Inputs)