The Indian government expects the cost of borrowing via treasury bills to fall going forward, a senior government source said on Thursday, after the 10-year benchmark bond yield dipped below 7 per cent for the first time in over a year.

Earlier in the day, the 10-year benchmark bond yield dipped to 6.97 per cent, its lowest since April 8, 2022, on the back of cooling inflation and expectation of U.S. Federal Reserve pivoting.

The official, who did not want to be named because he is not authorised to speak to media, also said he would like the 10-year yield to continue to trade below 7 per cent.

"We look forward to the cost of borrowing coming down. It is necessary, and (benchmark 10 year bond) yields should certainly come down,” the source told reporters.

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Even as government bond yields have plunged over the last few days, the T-bill yields have remained largely steady after an initial fall following the Reserve Bank of India’s surprise pause.

The cutoff for the 91-day to 364-day T-bills yields was in 6.90-7.00 per cent range on Wednesday and has remained around these levels in last two weeks. Meanwhile, the government expects to meet the fiscal deficit target for 2022/23 of 6.4 per cent with better-than-expected tax revenues and spending cuts helping in achieving the goal, the source said.

The gap between the government's revenue and spending will be met even as there will some shortfall in its small savings fund, the source said. For its next green bond offering, the government feels it should get better 'greenium', the source said. 'Greenium' or green premium that investors are ready to pay for the sustainable impact. In its first issue, the government got 5-6 basis points greenium which declined to 3-4 basis points in the next auction.

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