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Bond yields rise ahead of Union Budget: RBI’s debt sale adds pressure

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Indian government bond yields edged higher in early trade on Monday as investors braced for the upcoming Union Budget and digested the Reserve Bank of India’s (RBI) surprise debt sale.

The benchmark 10-year yield climbed to 6.9748%, nearing the crucial 6.98% level. The central bank’s decision to offload bonds worth Rs 3,405 crore through secondary market operations caught market participants off guard, as the banking system currently holds a surplus of liquidity.

While the move was unexpected, market experts like Sandeep Yadav, fixed income head at DSP Mutual Fund, had anticipated such a step. Yadav recommends investors consider bonds with maturities of 20 years or more.

All eyes are now on the Union Budget, scheduled for Tuesday. The fiscal deficit target and gross borrowing figure will be closely watched by market participants. Median forecasts suggest a fiscal deficit of 5.1% of GDP and gross borrowing of Rs 14.13 trillion.

The upcoming auction of benchmark bonds on Friday is also expected to influence market sentiment. Traders anticipate potential selling pressure as participants adjust their positions ahead of the auction.

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