Indian government officials have revealed a new strategy to manage cash positions by adjusting Treasury bill sales instead of altering bond auction schedules. This approach allows for greater flexibility and minimizes market disruptions, according to Finance Secretary T V Somanathan.
Following the recent federal budget announcement, the government plans to reduce bond borrowings by 120 billion rupees while cutting Treasury bill issuances. As a result, an estimated 500 billion rupees will flow into the banking system. This move aims to stabilize market conditions and avoid volatility.
With expectations of stable bond yields in the near future, investors anticipate a steepening of India’s bond yield curve. Short-term bond yields have already begun to decrease, with further declines predicted. This shift is likely to impact the three to five-year segment significantly, according to experts like Vikas Goel from PNB Gilts.
Overall, the market anticipates a decrease in bond yields of up to five years, widening the spread with benchmark bond yields. This trend, known as “bull-steepening,” reflects the current financial landscape.
($1 = 83.7070 Indian rupees)
Published 25 July 2024, 10:05 IST