The benchmark 10-year bond yield will likely open 2-3 basis points higher, two private bank traders said. It ended at 6.4003% on Thursday, down 8 basis points and its steepest drop since May 13.
Bond yields move inversely to prices.
Corporates are likely to increase bank borrowing as the gap between SBI’s lending rates and bond yields shrinks. This spread, which had widened significantly, has now decreased, making bank loans more attractive. SBI anticipates double-digit growth in corporate loan demand as companies find bank financing more cost-effective than the bond market, especially with anticipated MCLR adjustments.
Indian markets were shut on Friday for a public holiday.
In the biggest tax overhaul since 2017, Modi’s government on Friday announced sweeping changes to the complex goods and services tax (GST) regime, which will make daily essentials and electronics cheaper from October.
“Our ballpark estimates suggest that the proposed rate rationalization could cost the exchequer more than 1.2 trillion rupees on annualized basis (over 0.4% of GDP),” Emkay Global economist Madhavi Arora said in a note. Assuming implementation from October, the fiscal impact for the financial year on general government financing should amount to 0.2% of GDP, assuming the losses will be shared equally by the state and centre, Arora said. “This could further strain bond yields.” A surge in U.S. Treasury yields has also weakened sentiment for local bonds, traders said.
The 10-year U.S. Treasury yield has risen 7 basis points in the last three sessions.
RATES
India’s overnight index swap (OIS) rates are seen rangebound in early trading, while paying pressure may continue in the longer-term rates amid rising U.S. Treasury yields.
The one-year OIS rate was at 5.51% and the two-year OIS rate was at 5.45%. The liquid five-year OIS rate had settled at 5.6650% on Thursday.
KEY INDICATORS: ** Benchmark Brent crude futures were little changed at $65.75 per barrel, after dropping 1.48% in the previous session ** Ten-year U.S. Treasury yield was at 4.3082%; two-year yield US2YT=RR at 3.7505%.