India Bond Yields Stay Higher As FY20 Fiscal Gap Widens

Monday,   01-Jun-2020   01:00 PM (IST)

Indian government bond yields were higher in afternoon session, on concerns over the country's fiscal health after a sharp rise in the budget deficit for the previous financial year, and as a lack of steps so far by the central bank to support the market weighed. The benchmark 6.45% bond maturing in 2029 changed hands at 102.99 rupees, yielding 6.03%, at 1:00 p.m. in Mumbai, against 103.08 rupees, and a 6.01% yield, at previous close. The 5.79% 2030 bond was at 99.90 rupees, yielding 5.80%, against 100.04 rupees at previous close. The Indian rupee was at 75.54 to the dollar against 75.62 in the previous session. India’s fiscal deficit for the last financial year came in at 4.59% of gross domestic product, sharply wider than the government’s revised target of 3.8%. Fiscal deficit for April was 35.1% of the government’s estimate for this financial year. Deutsche Bank expects the federal government to announce more stimulus measures in the second half of this year, that will push up the fiscal deficit to 8% of GDP in this financial year against the 3.5% target. India has already increased its gross borrowing by 54% to 12 trillion rupees for this financial year. The federal government is keeping options open for further measures to support growth, a senior finance ministry official said last week. The country's economic growth in the last fiscal year slowed to an 11-year low of 4.2%, dragged down by the weak pace of expansion in fourth-quarter economic growth, which stood at 3.1% from a year earlier, its slowest rate in at least eight years. The coronavirus pandemic and the months-long lockdown starting Mar. 25 to contain the deadly virus have stalled economic activities and severely hurt government revenues. India has announced a phased lifting of the nationwide lockdown while maintaining restrictions in areas that are containment zones for the virus. The number of cases has spiked to 190,535, with 5,394 deaths so far. Crude oil prices fell ahead of an anticipated meeting of the Organization of the Petroleum Exporting Countries as early as this week, to discuss whether to extend record production cuts beyond the end of this month. The benchmark Brent crude oil contract was 0.2% lower at $37.74 per barrel. India imports over 80% of its crude oil requirements.