India cuts extra borrowing plans to $3.1B; bonds climb
mumbai — India said it would cut back on planned additional borrowing for the current fiscal year, providing relief to the nation’s sovereign bond market battered by concerns about rising inflation and worsening public finances.
The government will sell ₹200 billion ($3.13 billion) of debt, down from ₹500 billion extra announced less than a month ago, the finance ministry said in a statement on Wednesday after a “review of trends of revenue receipts and expenditure pattern.” The reduction follows expectations of a higher dividend from the central bank, a finance ministry official told reporters in New Delhi asking not to be identified citing rules.
The yield on bonds due January 2028 — the new 10-year bond — dropped 12 basis points to 7.26 per cent as of 1.50pm in Mumbai. The yield on notes due May 2027 also declined 11 basis points to 7.44 per cent. The rupee gained 0.2 per cent to 63.9250 per dollar, after falling 0.9 per cent on Tuesday.
Trimming bond sales will reduce supply-side pressures and “provide breathing space to the market,” said Sandeep Bagla, associate director at Trust Capital Services Pvt in Mumbai. “Investors were bleeding due to the surge in yields and would shy away from making further commitments unless offered a higher yield, which may not have been in line with the current growth-inflation scenario.”
Benchmark 10-year sovereign yields advanced for a fifth month in December, the longest stretch since 2000. Sovereign bonds have been spooked by higher supply of debt by the central and state governments and as worries over accelerating inflation and a wider budget deficit soured sentiment.
Yield on the new 10-year notes rose 11 basis points Tuesday after a central bank official warned banks they can’t keep relying on the regulator to manage their interest-rate risks. The spike may result in ₹155 billion of mark-to-market losses on the available-for-sale portion of the banks’ investment portfolios in the December quarter, according to ICRA Ltd, a local unit of Moody’s Lower borrowing may not be enough to reduce the budget deficit in the current fiscal year, which Nomura Holdings estimates at 3.5 per cent of the gross domestic product, wider than budgeted 3.2 per cent aim. That’s because the administration plans to borrow ₹1.79 trillion through Treasury-bills in the March quarter. — Bloomberg