Government bonds completed their biggest weekly advance since November, on reports that the new government would strive to bring down the fiscal deficit.
The yield on the 10-year benchmark bond ended at 8.64 per cent — its lowest since January 22 — compared with the previous close of 8.71 per cent. The yield had ended at 8.83 per cent last Friday.
During the week, the yield fell nearly 20 basis points. That’s the biggest weekly drop for the 10-year benchmark bond since the five days ended November 29.
“The expectation is that government borrowing might be reduced due to which bond market is bullish. The market is also expecting that there are chances of a rate cut in the second half of the financial year,” said Balginder Singh, a government bond dealer at Andhra Bank. The yield might trade in the range of 8.50 to 8.70 per cent next week.
Meanwhile, foreign institutional investors were net buyers of $ 477.4 million in debt on Thursday, latest exchange data show. That’s the biggest single-day purchase since March 6.
The liquidity in the system also helped bond yields to fall.
“Liquidity has been supportive,” said K Ramanathan, chief investment officer at ING Investment Management. “There’s a lot of hope and expectation in the market that the new government will join efforts by the central bank to tackle inflation,” he said.
JPMorgan Asset sees the 10-year bond yield falling to as low as 8.25 per cent by year-end, while DSP BlackRock predicts a drop to as low as 8.40 per cent.