5 Sept 2021

G-sec yields trend down on improving government finances - Weekly Fixed Income Analysis

10-year g-sec yield trended down from highs, as the bond-market looked at the GDP growth, tax collections, exports and equity values as highly favorable factors for improvement in government finances.

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Team INRBonds
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Government finances could look better this year

The recent set of data on GDP growth, fiscal deficit, exports and tax collections coupled with strong financial performance of corporates and rising equity prices, point to improved revenues for the government through tax collections and disinvestments. The asset monetization plan would also lead to fiscal deficit coming off sharply.

The 6.10% 2031 bond, which is the benchmark 10-year bond, saw yields coming off from highs of 6.25% to 6.15% levels, as markets factored in strong government finances that could lead to lower borrowing. The bond yield is likely to trend down further as markets look at demand-supply factors for bonds with RBI of Rs 1 trillion of supply through its GSAP.  

During Apr-July 21, India’s fiscal deficit stood at Rs 3.21 trillion which is 21.3% of the full fiscal's target. During the same period, net tax receipts were Rs 5.21 trillion while total expenditures was Rs 10.04 trillion.

India’s gross goods and services tax (GST) revenues in August 2021 stood at Rs 1.12 trillion as compared to Rs 1.16 trillion in July 2021. Of the total GST collection in August, Central GST was Rs 205.22 billion, State GST Rs 266.05 billion, and Integrated GST stood at Rs 562.47 billion.

As per earlier announcement in Union Budget FY22, Union Minister of Finance has our-year infrastructure asset monetisation plan to raise Rs 6 trillion

India's merchandise exports rose by 45.17% to $33.14 billion in August 2021 as compared to $22.83 billion in the corresponding month last year while merchandise imports soared 51.47% to $47.01 billion in August 2021 against $31.03 billion in August 2020. The trade deficit stood at USD 13.87 billion in August 2021 compared to the trade deficit of USD 8.2 billion in August 2020, while it is USD 55.9 billion during April-August 2021 as compared to USD 22.7 billion during the same period of the previous year.

Government bonds, SDL and OIS yield movements        

During last week, 6.10% 2031 yield came down by 9 bp to 6.16% while 5.85% 2030 yield came down by 9 bp to 6.15%. 5-year benchmark bond, 5.63% 2026 yield declined by 11 bps to 5.57%. 6.64% 2035 yield declined by13 bps to 6.68%. 6.57% 2033 yield declined by 4 bp to 6.60%. Long-term paper, 7.16% 2050 yield decreased by 14 bps to 6.99%.

The spread of 10-year bond over 5-year bond rose to 59 bps from 57 bps in previous week.  The 15-year benchmark over 10-year benchmark spread rose by 5 bps to 44 bp, while 30-year benchmark over 10-year benchmark spread rose by 1 bp to 79 bps on weekly basis.

Average 10-year SDL auction cut-off declined to 6.91% from 6.99% in previous week while spread came down to 69 bps rom 74 bps in previous week.

On weekly basis, 1-year OIS yield declined by 4 bps to 3.85% while 5-year OIS yield decreased by 6 bps to 5.11%.

 

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