Indian bonds rise for fourth straight day ahead of 2017-18 Union Budget

The Indian government bonds rose for the fourth straight session Wednesday, succumbing to thin trading activity during a relatively quiet session that witnessed data of little significance and ahead of the country’s 2017-18 Union Budget, scheduled to be unveiled on February 1.                                                            

Also, investors will be looking forward to a host of central government bond auctions, worth INR110 billion, scheduled to be held on January 27.

The yield on the benchmark 10-year bonds, which moves inversely to its price, fell 1 basis point to 6.43 percent, the yield on long-term 15-year note also fell 1/2 basis point to 7.07 percent and the yield on short-term 2-year note moved down 1 basis point to 6.30 percent by 07:30 GMT.

The countdown for Finance Minister Arun Jaitley’s 4th Union Budget has begun and speculations are on surrounding a host of things.  In a week’s time, India will present the FY2017-18 budget against a challenging backdrop.

Apart from a busy state election calendar, there is considerable uncertainty over the impact of demonetization on growth. Implementation of the Goods and Services Tax (GST) is also pending for the second half of the year, reported DBS Bank in its research note.

These factors have raised expectations for fiscal consolidation to be postponed to next year. We expect a more balanced approach, with recent gains from fiscal consolidation unlikely to be frittered away.

It is worth noting that the benchmark 10-year yields fell nearly 160 basis points to 6.18 percent in 2016 as subdued inflation and negative impact of demonetisation raised expectations for the RBI rate cut. We at FxWirePro expect this is also likely to continue even in 2017.

Lastly, markets are also awaiting the Reserve Bank of India’s (RBI) first bi-monthly monetary policy meeting of 2017, scheduled to be held on February 7-8.

Meanwhile, the 30-share benchmark Sensex traded 0.68 percent higher at 27,559.62, while the 50-share benchmark Nifty futures traded 0.91 percent or 76.55 points up at 8,552.05 by 07:50 GMT.