Mumbai: The yield on the benchmark 10-year government bonds crashed a massive 180 bps to 6.56 percent during intra-day trade soon after the Budget projected a lower fiscal deficit target at 3.3 percent for the current fiscal.
However, the yields bounced back and closed at 6.69 percent. The market opened at 6.74 percent but soon after the deficit target was announced it plunged to 6.56 percent in the trading hours.
Presenting the budget, finance minister Nirmala Sitharaman lowered the fiscal deficit target to 3.3 percent for the current fiscal from 3.4 percent of GDP as announced in the interim budget.
"Inflation in under control and government is committed to fiscal deficit target. This is a big positive for the bonds market today," said a treasurer at a state-run bank.
The interim budget in February had pegged fiscal deficit target at 3.4 percent.
Sitharaman also said the government would start raising a part of its gross borrowing programme in external markets in external currencies.
"This will also have beneficial impact on demand situation for the government securities in domestic market, she said.
Bankers said if the government borrows from overseas market, the total borrowing is not going to increase in domestic market helping it meet the new fiscal deficit target.
"This also helped bond yields to ease," said a senior treasury official at another public sector bank.
RK Gurumurthy, head of treasury at Read More – Source