While much has been spoken about the consumption push in the Budget via income-tax giveaways to the middle-class, there are pointers to suggest that the bond market, too, has many positives going for it.

An extremely prudent fiscal path taken by the Centre for the next financial year, maintaining market borrowing programme constant for the third year in a row and the near unchanged capex spends from the previous year could send bond yields south.

From an investor perspective, there may still be juice in the longer duration and gilt funds in the coming year.

Falling deficits and yields

Budget 2025 has stuck to fiscal discipline, even while seeking to fuel consumption. In FY25 itself, the Centre has beaten its original forecast of fiscal deficit coming in at 4.9 per cent as it is now esitmated to be only 4.8 per cent for the financial year. For FY26, the fiscal deficit is estimated to be 4.4 per cent, while the expectation was for 4.5 per cent.

Also, the Budget has made it clear that the market borrowing programme with dated securities would be ₹11.54 lakh crore, which is almost unchanged for a third year in a row.

The net revenue growth rate estimate of 10 per cent is modest and it is expected that the Centre will exceed this target.

Overall, from a fiscal standpoint, the bond markets have much to cheer about. And they have been making merry for the past 12-15 months.

The 10-year G-Sec, for example, has seen yields come off from 7.15 per cent a year ago to 6.7 per cent currently, a fall of 45 basis points. In other longer-dated securities maturing 15, 20 or 30 years away, the fall in yields has been about 50-55 basis points.  Yields fall as a result of rising bond prices, which benefits investors of long-dated instruments.

Cheer for debt fund investors

Most Long duration, gilt and 10-year constant duration funds have given double-digit returns in the past one year, on the back of the bond price rally in the last one year. Given the healthy fiscal path, inclusion of Indian bonds in the FTSE Russell and Bloomberg indices and the prospects for rate cuts (even if modest) make the case for these category of funds with potential for healthy returns in the near term. Of course, returns may not be as spectacular as was the case in the previous year.

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