Mumbai: Government bond yields fell for the second session on Tuesday after the Centre kept its borrowing programme unchanged for the second half of the fiscal and said it will auction a new 10-year bond this week.

The yield on the 10-year Indian government bond was at 6.684% compared with its previous close of 6.702%. Bond yield and prices move in opposite directions.

The government stuck to its gross borrowing target for the second half of the fiscal at 2.68 trillion, despite an expected revenue shortfall because of cuts in corporate taxes earlier in September.

"The budgeted borrowings should allay fears of bond market on fiscal slippage for now. Even as the curve may steepen with heavier issuance at the belly, the overall curve still has scope to come down from current levels," said Madhavi Arora, economist, Edelweiss Securities in a note.

"The supply is light, with possible OMO supply further aiding the demand-supply dynamics. We see RBI rate cycle still has some depth to explore to help bonds. While fiscal risks are real (even adjusting for existing buffers of RBI dividend and savings on PMKISAN) and could lead to extra borrowing of Rs450-500bn in 4QFY20, fresh fiscal cushion may emerge if government over-delivers on divestment front," Arora added.

Arora said, as of now, we remain fiscally vigilant but not ignorant of possible buffers. The benchmark 10-year paper is seen in the 6.40-6.80% range with a downside bias for the coming quarter.

Meanwhile, the Indian rupee strengthened marginally against US dollar after current account deficit narrowed to $14.30 billion in June quarter against $15.80 billion a year ago. The rupee was trading at 70.82 a dollar, up 0.08% from Monday's close of 70.87.

The benchmark Sensex index rose 0.38% or 147.71 points to 38815.04. So far this year, it has gained 7.21%.

In the year so far, the rupee has weakened 1.55%, while foreign investors have bought nearly $8.20 billion in Indian equities and $4.02 billion in debt.

Most Asian currencies were weak as traders await key US economic data and another round of trade talks between the US and China.

China renminbi was down 0.36%, Singapore dollar fell 0.14%, Japanese yen lost 0.12%, Malaysian ringgit and South Korean won declined 0.1% each, and Indonesian rupiah was marginally weak.

The dollar index, which measures the US currency’s strength against a basket of major currencies, was at 99.493, up 0.12% from its previous close of 99.377.

(Bloomberg contributed this story)