Indian bonds slump amid higher borrowing

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