INDIA BONDS-India bonds poised for weak open as tax overhaul stirs fiscal concerns, ETCFO
By Khushi Malhotra
MUMBAI, – Indian government bonds are poised for a weak open on Monday, tracking softer U.S. Treasuries, and as Prime Minister Narendra Modi’s large tax overhaul has fanned worries of rising fiscal pressure.
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.
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% (Reporting by Khushi Malhotra; Editing by Eileen Soreng)
