Mumbai: Bonds in India were hammered after the government unveiled plans to sell record amount of bonds in the next financial year.
The selloff was exacerbated as the annual budget announcement lacked widely expected measures to facilitate inclusion of the nation’s bonds into global bond indexes. Elevated bond sales will worsen debt supply worries in a year when the Reserve Bank of India is expected to wind back on its monetary stimulus.
The yield on the benchmark 10-year bond rose as much as 21 basis points to 6.89%, the highest since July 2019. The rupee fell 0.2% to 74.74 per dollar.
“India government bonds are facing a double whammy,” said Harish Agarwal a bond trader at FirstRand Bank in Mumbai. “Without any support, the yields are set to jump to 6.95% to 7% in the coming days.”
The government plans to sell about 15 trillion rupees ($200 billion) of bonds in the fiscal year starting in April, according to the budget documents, much higher than 13 trillion rupees forecast in a Bloomberg survey. Sales will be higher than 12.06 trillion rupees slated for the current year. Net borrowings are estimated at 11.2 trillion rupees for the next year.
Bond yields have climbed more than 40 basis points this year as the RBI ramps up its liquidity withdrawal in efforts to gradually normalize policy and amid rising global yields. The central bank has also stopped its bond purchases and banks, the biggest buyers are already overstocked, leaving a demand-supply imbalance. – Bloomberg.
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