Indian sovereign bonds remain still as investors focus on 2017-18 Union Budget

The Indian government bonds remained stagnant Tuesday ahead of the presentation of the country’s Union Budget, scheduled to be unveiled on February 1. Also, a shift of interest has been observed in investors’ trading attitude, away from riskier assets including equities and crude oil.

The yield on the benchmark 10-year bonds, which moves inversely to its price, hovered around 6.40 percent, the yield on long-term 30-year note also remained flat at 7.04 percent while the yield on short-term 3-year note moved up nearly 1 basis point to 6.34 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.

The Government of India is scheduled to auction worth INR110 billion bonds this week in its last auction for the fiscal. Traders await details of the papers, likely to be announced by the Reserve Bank of India (RBI) after market hours today.

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

Meanwhile, the 30-share benchmark Sensex traded 0.40 percent lower at 27,737.70, while the 50-share benchmark Nifty futures traded 0.55 percent or 47.45 points down at 8,585.50 by 07:40 GMT.