Home Borrower India bonds set to win as government borrowing plan

India bonds set to win as government borrowing plan

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(Bloomberg) – Bonds in India could be on the verge of gaining ground after the government refrained from adding to its near-record borrowing plan for the year, relieving market battered by rising yields of the Treasury and oil prices.

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The administration will stick to its plan to borrow 12.05 trillion rupees ($ 163 billion) during the year through March, the finance ministry said in a statement on Monday. Finance Minister Nirmala Sitharaman previously said the government could borrow an additional 1.6 trillion rupees, leading traders to expect higher sales for the second half of the year.

The news could support the domestic bond market, weighed down by soaring US Treasury yields on rising bets for the Federal Reserve to start gradually reducing stimulus measures soon. Market attention will now shift to a key index review by FTSE Russell for the country’s bonds on Thursday and any potential inclusion will trigger a rally.

“The market would be very relieved if the government did not change its borrowing schedule,” said Harish Agarwal, fixed income trader at FirstRand Bank. “It will certainly have a positive impact, with US Treasury yields reaching 1.5% which is negative for the market.”

India’s 10-year benchmark bond yield has risen nine basis points to 6.21% in the past four sessions to hit a one-month high as rising crude prices threaten exacerbate inflation in the net oil importing country.

The withdrawal of liquidity from the banking system by the Reserve Bank of India further weighed on sovereign debt. The central bank started making its bond buying program liquidity neutral since last week by including an equivalent selling leg at auction. It has also launched shorter floating rate repo auctions to modulate shorter-term liquidity.

“Based on the borrowing schedule, we expect government bond yields to deviate by at least 10 basis points,” said Aditi Nayar, chief economist at ICRA Ltd. “The 10-year yield should be between 6% and 6.2%. % in the coming quarter, with crude oil prices rising to counter benign borrowing numbers. “

The government plans to sell 5.03 trillion rupees of bonds in the six months to March, against a previous plan of 4.8 trillion rupees. The marginal increase is due to insufficient borrowing in the first half of the year. Borrowing in the first half amounted to 7.02 trillion rupees, against 7.24 trillion rupees expected, according to the statement. The loan for the second half of the year will take into account compensation from the States for a shortfall caused by the pandemic.

The table below shows the distribution of the offer for the second semester:

Finance Minister Nirmala Sitharaman said in May that the government would borrow an additional 1.6 trillion rupees on behalf of states to compensate them for the shortfall in the goods and services tax. Instead of additional borrowing, the central government took 750 billion rupees from its own borrowings due to improved income in the first half of the year.

India’s net direct collections jumped 74 percent to 5.7 trillion rupees on September 22, the government said last week. Revenue from the goods and services tax rose 30% to 1.12 trillion rupees, slightly below 1.16 trillion rupees in July.

(Updates with the voice of the trader in the fourth paragraph)

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