India bond rout shows no sign of abating

mumbai — Indian bonds are sliding at the fastest pace in almost two decades, and the selloff isn’t showing signs of easing.

The yield on benchmark 10year notes, up for a fifth month in December, will rise further by the end of March, according to 10 of 15 respondents in a Bloomberg survey. Some see it going from 7.25 per cent on Thursday to as high as 7.50 per cent, as a potentially wider fiscal deficit risks more debt sales by the government and elevated oil prices threaten to fan alreadyrising inflation.

If that wasn’t enough, this week brought another headwind. A slim poll victory for Prime Minister Narendra Modi’s ruling Bharatiya Janata Party in his home state of Gujarat stoked speculation that his administration will resort to populist measures to woo voters ahead of the 2019 general election.

“The uncertainty surrounding government borrowings is hanging like a sword over the bond market,” said Vijay Sharma, executive vice-president for fixed income at PNB Gilts in New Delhi. “Worries about additional bond sales have heightened after the not-so convincing BJP win in Gujarat and investors want clarity on the government’s fiscal stance.”

The 10-year yield will be at 7.25 per cent by the end of March, according to the median estimate in a Bloomberg survey conducted earlier this week. The yield’s seven-basis point jump in just the past two days has seen it already touch that level on Thursday. It has surged 78 basis points since the end of July. — Bloomberg