Indian bond yields ends flat as govt reduce market borrowing, fiscal deficit

bonds

Indian bond yields ended almost flat on July 23 after the government reduce market borrowing numbers and cut fiscal deficit in the Union Budget 2024.

The 10-year benchmark bond 7.10 percent 2034 yield ended at 6.9695 percent, as compared to 6.9662 percent close on the previous trading sessions.

Throughout the budget speech and day, the 10-year bond yield moved in the range of 6.9260 percent to 6.9887 percent. The high in terms of yield was touched during the start of the budget speech.

Finance Minister Nirmala Sitharaman in a speech presenting the full Budget for 2024-25, said the Centre marginally cut the gross borrowing target from the markets in 2024-25 to Rs 14.01 lakh crore to finance its fiscal deficit of 4.9 percent of the GDP.

This is Rs 1.4 lakh-crore lower compared to the estimate of Rs 15.43 lakh crore for FY24.

In percentage terms, the Centre's gross borrowing is 8.4 percent lower than the FY24 figure, while for net borrowing the reduction is a much lower 0.4 percent compared to the previous fiscal's figure.

The sharply lower gross borrowing figure for FY25 is a result of the central government's focus on aggressive consolidation as it looks to meet a sharply lower fiscal deficit target.

The borrowing number is key since the central government finances its fiscal deficit mainly through issuing dated securities.

On the other, the government also reduced the fiscal deficit target to 4.9 percent of the GDP for 2024-25, from the target of 5.1 percent pegged in the interim Budget.

It was already a huge 70 basis points (Bps) less than the previous fiscal’s revised estimate of 5.8 percent. One basis point is a hundredth of a percentage point.

Further, the Finance Minister set the fiscal deficit target even lower at 4.5 percent for the next financial year 2025-26.

In the budget speech, finance minister said there are nine priority areas for Budget FY24-25 and upcoming budgets.

These priority areas are ⁠productivity and resilience in agriculture, employment and skilling, ⁠Inclusive HR development and social justice, manufacturing and services, urban development, energy security, infrastructure, ⁠Innovation R&D, and ⁠Next generation reforms.