In July 2024, the yield on the Indian 10-year government bond held steady below the 7% threshold, maintaining strong demand momentum for Indian fixed income securities. This stability follows a two-year low of 6.95% reached in early June, reflecting investor confidence bolstered by the release of the Union Budget for the 2025 financial year.

Union Budget 2025: A Fiscally Conservative Approach

The 2025 Union Budget introduced a slightly more fiscally conservative outlook than markets had anticipated and what was suggested by the interim budget in February. Key highlights include:

Spending Deficit: The budget outlined a spending deficit of 4.9%, lower than the interim budget's 5.1%.

Borrowing Plans: Total borrowing fell by INR 100 billion to INR 14.1 trillion.

This lack of aggressive spending hikes reinforced the perception that Prime Minister Narendra Modi retained significant influence in the government, ensuring the continuation of policies that have driven robust economic growth and attracted substantial foreign investment.

Sustained Demand for Indian Fixed Income

The fiscally conservative stance of the Union Budget has consolidated investor confidence in Indian fixed income assets, particularly Government Securities (G-Secs). The continued strong demand is underpinned by:

Stable Bond Yields: The 10-year government bond yield remaining below 7% indicates sustained investor interest.

Economic Growth: India's economic growth remains one of the highest among major economies, further enhancing the attractiveness of Indian bonds.

Foreign Investment: Major inflows of foreign investment into Indian G-Secs have provided additional support to the bond market.

Government Influence and Market Confidence

The influence of Prime Minister Modi and his ability to sustain fiscally prudent policies has played a crucial role in maintaining market confidence. The government's approach aims to balance fiscal responsibility with economic growth, ensuring continued investor interest and stable bond yields.

Conclusion

The yield on the Indian 10-year government bond holding steady below 7% in July reflects the strong demand for Indian fixed income assets following the release of the 2025 Union Budget. The budget's fiscally conservative approach, coupled with robust economic growth and significant foreign investment, has supported the bond market. This stability underscores the importance of balanced fiscal policies and investor confidence in sustaining India's economic momentum.

The continued attractiveness of Indian G-Secs, driven by prudent government policies and strong economic fundamentals, highlights the country's position as a favorable investment destination in the global fixed income market.

Also Read : Key Budget Highlights 2024: Essential Announcements and Updates

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