The Indian government expects the cost of borrowing through T-bills to fall in the future, a senior government source said on Thursday, after the benchmark 10-year bond yield fell below 7 percent. for the first time in over a year.

Earlier in the day, the benchmark 10-year bond yield fell to 6.97%, its lowest level since April 8, 2022, due to cooling inflation and expectations that the US Federal Reserve .us pivot.

The official, who did not want to be named because he is not authorized to speak to the media, also said he would like to see the 10-year yield continue to trade below 7 percent.

“We expect the cost of borrowing to come down. It’s necessary, and (benchmark 10-year bond) yields should certainly come down,” the source told reporters.

Also Read: G Secs Rally on Expectations for Fed to Pause Rate Hikes

Even as government bond yields have tumbled in recent days, Treasury yields have largely held steady after an initial drop following the Reserve Bank of India’s surprise pause. .

The cutoff for 91- to 364-day Treasury bill yields was in the 6.90 to 7.00 percent range on Wednesday and has hovered around these levels for the past two weeks. Meanwhile, the government expects to hit the 2022/23 fiscal deficit target of 6.4 percent with better-than-expected tax revenues and spending cuts helping to achieve the target, the source said.

The gap between government revenue and spending will be covered even if there is a shortfall in his small savings fund, the source said. For its next green bond offering, the government thinks it should get better greenium, the source said. ‘Greenium’ or green premium that investors are willing to pay for the sustainable impact. In its first issuance, the government got 5-6 basis points of greenium, which dropped to 3-4 basis points in the next auction.

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