July 16 (Bloomberg) -- India’s 10-year bonds were little changed after Finance Secretary Ashok Chawla said yesterday that the government will “frontload” its planned debt offers, tempering demand for existing securities. India last week raised its annual bond-sale target by 25 percent to a record 4.51 trillion rupees ($92.7 billion) to bridge a widening budget deficit. Chawla was referring to a practice of borrowing more in the early months of the financial year that started April 1. “The planned debt supply is big and there’s still much uncertainty about the government’s borrowing schedule,” said Sanjay Arya, treasurer at state-owned Bank of Maharashtra in Mumbai. “There’s some upward pressure on yields.” The yield on the 6.9 percent note due July 2019 was at 6.85 percent as of 10:15 a.m. in Mumbai, according to the central bank’s trading system. The price was 100.30 per 100 rupee face amount.
The cost of five-year swaps, or derivative contracts used to guard against rate fluctuations, was little changed. The rate, a fixed payment made to receive floating rates, was at 6.20 percent versus 6.21 percent yesterday. The government plans to sell 120 billion rupees of securities tomorrow. It may auction at least 150 billion rupees of debt a week in the coming months, Chawla said yesterday. Yield Spreads India’s budget shortfall will rise to 6.8 percent of gross domestic product, the most since 1994, this fiscal year as the nation spends more to revive economic growth, Finance Minister Pranab Mukherjee said on July 6. A wider budget deficit “right now” is critical to accelerate India’s growth, Mukherjee said on July 14. The difference in yield between one- and 10-year bond yields has widened to 2.94 percentage points from 0.44 percentage point at the start of the year, according to data compiled by Bloomberg, indicating less demand for longer-term securities as the government increases sales. The spread reached a record 3.01 points on July 7. “Investors are shifting to short-dated securities as a defensive action,” Bank of Maharashtra’s Arya said.
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