In­dian bonds slump amid higher bor­row­ing

The Sun (Malaysia) - - SUNBIZ -

MUM­BAI: In­dia’s bench­mark 10-year bond slumped to a more than 17-month low yes­ter­day, send­ing its yield up as much as 11 ba­sis points, af­ter the gov­ern­ment said it needs to bor­row more for the year end­ing in March than the mar­ket ex­pected.

It’s no surprise there would be ad­di­tional bor­row­ing in the last three months of the fis­cal year, as tax col­lec­tion plunged af­ter the launch of the na­tional Goods and Ser­vices Tax in July.

But In­dia’s an­nounce­ment it would bor­row an ad­di­tional 500 bil­lion ru­pees (RM31.7 bil­lion) was well above the 250-300 bil­lion ru­pees most traders ex­pected.

The greater-than-an­tic­i­pated bor­row­ing also sparked fears the gov­ern­ment would breach its fis­cal deficit tar­get of 3.2% of gross do­mes­tic prod­uct this fis­cal year, po­ten­tially spurring higher in­fla­tion that in turn could lead the cen­tral bank to raise in­ter­est rates.

“The mar­ket is ner­vous. No one was ex­pect­ing an ad­di­tional 500 bil­lion ru­pees worth of bor­row­ing,” said Har­ish Agar­wal, a fixed-in­come trader in Mum­bai for First Rand Bank.

The bench­mark 10-year bond yield was up 11 ba­sis points at 7.33% by 0455 GMT, its high­est level since mid-July 2016. How­ever, In­dian shares edged higher yes­ter­day. The broader NSE in­dex up was up 0.08%, sup­ported by some hopes that any in­creased spend­ing could sup­port an econ­omy that’s only start­ing to re­cover af­ter a five-quar­ter slide.

The 10-year bond yield has risen more than 85 bps since the Re­serve Bank of In­dia last cut in­ter­est rates in early Au­gust.

The in­crease has come amid con­cerns that ac­cel­er­at­ing in­fla­tion sig­nals the end of the cen­tral bank’s eas­ing cy­cle. – Reuters

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