10-year bond yield hits 17-month high on govt borrowing plan

MUMBAI: The benchmark 10-year government bond yield rose the most in more than 11 months on Thursday after the government said it would borrow an additional ₹50,000 crore via bonds to fund its fiscal deficit.

The 10-year bond yield rose 17.70 basis points to 7.396%—a level last seen on July 4, 2016— from its Wednesday’s close of 7.219%. It opened at 7.250% and touched a high of 7.399%. So far this year, the bond yield has surged over 88 basis points. Thursday’s rise was the biggest jump since February 8.

Bond prices and yields move in opposite direction. Rising yields will increase the government’s borrowing costs.

The government announced the additional borrowing plan on Wednesday after the goods and services tax (GST) data for December showed a slide in revenue receipts. The expanded market borrowing programme, analysts say, signals that the government may breach its fiscal deficit target of 3.2% of gross domestic product (GDP).

This may force finance minister Arun Jaitley to recalibrate his fiscal consolidation roadmap of achieving capping the fiscal deficit at 3% of GDP by 2018-19.

GST collection in December, on transactions done in November, fell further to ₹80,808 crore from ₹83,346 crore in November, according to official data released on Tuesday.

The government has taken approval from Parliament for extra spending of ₹33,380 crore.

“Rise in market borrowings is coming at a time when appetite from investors has lessened and other factors have turned wobbly, especially global yields. Now investors will be more concerned about next year’s supply,” said Soumyajit Niyogi, associate director, India Ratings and Research Pvt. Ltd.

Securities house firm Kotak Institutional Equities has revised its fourth quarter 2018 range for the 10-year bond yield to 7.15-7.40% from 6.9-7.1% earlier.

Traders are already concerned by a surge in international crude oil prices, which may lead to higher inflation and may give less space to the RBI to cut rates.

Meanwhile, the rupee closed marginally higher against the dollar. The rupee opened at 64.13 and touched a high and a low of 64.07 and 64.27 respectively. The home currency closed at 64.08 a dollar, up 0.12% from its previous close of 64.16.