India bonds seen rising as Finance Minister affirms borrowing, deficit targets

Indian government bonds are set to rise after the finance minister assured there will be no tweaks to the borrowing plan and that the fiscal deficit goal will be met.

The yield on the 10-year benchmark note is expected to open lower by 2-3 basis points, said a trader at a private bank. It closed on 6.4651% on Friday.

The debt market was shut on Monday due to a local holiday.


Bond yields move inversely to prices.

Bulls expect the 10-year yield to test 6.40%, a key psychological level, as sentiment firmed up after Finance Minister Nirmala Sitharaman told local media the government will deliver on its fiscal deficit target and leave the borrowing calendar unchanged.

"Nothing changes in my borrowing calendar. That should reassure all," she told a newspaper when asked about bond yields rising over concerns that the government may borrow more from the markets.

This has assuaged any fiscal concerns traders had after the government slashed its goods and services tax to boost the economy.

"There is finally some positive sentiment in market after FM's speech," said Kruti Chheta, a debt fund manager at Mirae Asset Management.

Also aiding sentiment was the drop in U.S. yields following weaker jobs data in the United States.

The first of staggered cuts in the Cash Reserve Ratio announced in central bank policy also took effect on September 6. Any reverse repo transactions by the Reserve Bank of India will be keenly watched by traders after the CRR cut, traders said.

The focus is now on India and U.S. inflation data, due later this week.

RATES

India's overnight index swaps are poised to drop further as fiscal worries abate and sentiment improves in the Indian bond market.

The one-year OIS rate was at 5.4850%, while the two-year OIS rate ended at 5.4525% on Friday.

The five-year OIS rate settled at 5.7150%.