Bond prices continued to slide on Wednesday with the yield on the benchmark 10-year security rising almost 6 basis points to close at 6.88 per cent after it had breached the 6.90-per-cent mark during intra-day trades.

Market players are bracing for the yield to hit 7 per cent in the next few days in the absence of any policy support in the budget. The pressure is now on the Reserve Bank of India (RBI) to make purchases although the apex bank had stopped its GSAP (government securities acquisition programme) operations in October.

Bond markets came under intense pressure after the budget on Tuesday as data showed the government could borrow a gross sum of almost Rs 15 lakh crore in 2022-23, higher than analyst expectations of around Rs 13 lakh crore.

The markets were particularly disappointed that Sitharaman did not announce any tax reliefs to foreign portfolio investors (FPIs) which would have pave the way for domestic bonds being included in global indices.

The markets were betting on the announcement which would have led to huge dollar inflow — $30-40 billion expected by some investment banks — into domestic bonds that would have taken the pressure off amid a huge supply on yields.

At a press conference after the budget, senior finance minister officials indicated discussions are on at the BEPS (base erosion and profit sharing) where India has insisted on the levy of capital gains tax in the source nation. None of the countries whose bonds are traded on global indices levy such a tax.

In its post-Budget analysis, HDFC Securities said market borrowings are slated grow at 32.2 per cent in 2022-23 creating pressure on domestic money markets and that interest rates may not fall in a hurry unless the Indian sovereign bonds get included in global indices soon.

While interest rates can also fall if the central bank decides to bring down its policy repo rate, this is being seen as unlikely. Abheek Barua, chief economist, HDFC Bank said in a note a significantly higher than expected borrowing was likely to put further pressure on yields at a time when both global and domestic interest rate cycles are at the cusp of turning this year.

“The absence of any announcement around a tax relief for foreign bond investors was a disappointment and led to further pressure on yields’’, he noted while adding for 2022-23, the 10-year bond yield could rise to 6.9-7 per cent by the first half with a breach of the 7 per cent level now likely.