The yields on short-term instruments like treasury bills, too, will likely ease, he added. The yield moves in the opposite direction of a bond’s price.
“In addition to the global factors (including the recent drop in oil prices and a possible pause on rates by the US Federal Reserve), the feeling among bond market participants that government securities won’t flood the market in FY24 is finally sinking in. Domestic inflation, too, is likely to moderate,” said the official.
This will ease pressure on private borrowers at a time when capital spending by the private sector is expected to gain further traction, he added.
Given the sharp hike in the capex budget of the railways and the road transport ministries, their affiliated entities are unlikely to borrow much from the market this fiscal year. Also, the Centre’s budgeted long-term capex loans of a record ₹1.3 lakh crore to states in FY24, against ₹76,000 crore (revised estimate) in the last fiscal year, will cut their borrowing requirement proportionately, officials said.
Moreover, the signal by the US Fed on Wednesday of a potential pause in its rate tightening cycle, after it hiked the interest rate by 25 basis points, helped domestic bond yields to ease as well. Global Brent crude oil prices have also dropped by about 9% since last Friday.
At 7.01%, the 10-year benchmark G-sec yield has now dropped by over 40 basis points since hitting a nearly four-month high on February 27. The cut-off for the 91-day to 364-day treasury bills yields was in the range of 6.9% to 7% on Wednesday; it has remained around these levels since mid-April.
The Centre has pegged its gross market borrowing for FY24 at ₹15.43 lakh crore, lower than the ₹16 lakh crore that some analysts had expected before the budget announcement. It has proposed to borrow 57.6% of the full-year target in the first half of the fiscal year.
Sovereign green bonds
The finance ministry expects greater investor interest for the sovereign green bonds in FY24, which could raise the “greenium”, or the premium for being a green security. The size of the FY24 green bond issuance will be announced along with the government’s borrowing plan for the second half of this fiscal year. However, it is likely to be higher than the ₹16,000 crore raised last fiscal year.
