However, despite fiscal deficit being revised up to 3.8% of gross domestic product (GDP) for this fiscal – the highest in four years – compared with 3.3% budgeted earlier, the 10-year G-sec yield has slid ~100 basis points (bps) from 7.3% at the start of fiscal 2020 to 6.3% as on March 13.
Are yields ignoring fiscal cues? Well, not exactly.
Other factors are dominating, actually. Such as:
Centre is relying less on market borrowings
The central government has been borrowing significantly from the National Small Savings Fund (NSSF), a non-market source. That has taken some pressure off G-Sec yields. In fiscal 2020, while net market borrowings rose 16% on-year, that from NSS Frocketed 92%.
This is not a one-off, either. The share of NSSF in funding fiscal deficit has risen steadily to 31.3% in fiscal 2020 from 1.3% in fiscal 2013, while the share of market borrowings dropped nearly a third to 65.1% from 96.2%.