Bloomberg News

India 10-Year Bond Yield Rises to 2-Month High on Borrowing Plan

September 29, 2011

Sept. 29 (Bloomberg) -- India’s 10-year bond yield climbed to a two-month high after the government said it will borrow 32 percent more than planned in the second half of the financial year to make up for dwindling funds.

The benchmark securities completed five quarters of losses after the finance ministry today said it will sell 2.2 trillion rupees ($45 billion) of debt in the six months ending March 31, versus an earlier plan for 1.67 trillion rupees. Fewer collections in small-savings accounts and less-than-expected cash surplus forced a higher target, R. Gopalan, secretary, Department of Economic Affairs, told reporters in New Delhi.

“This has come as a negative surprise,” said Nirav Dalal, the Mumbai-based head of debt markets at Yes Bank Ltd. “Considering the heightened fiscal conditions globally, there was a sense that the government would maintain their numbers.”

The yield on the 7.8 percent securities due April 2021 rose 10 basis points, or 0.10 percentage point, to 8.44 percent, the biggest increase in two months. There won’t be trading in bonds tomorrow due to half-yearly closing of banks’ accounts.

Yields have risen 52 basis points, or 0.52 percentage point, this year and 11 this quarter on concern the fastest inflation among the so-called BRIC economies will prompt the central bank to continue its record series of rate increases.

An index measuring wholesale prices of agricultural products gained 9.13 percent in the week ended Sept. 17 from a year earlier, the government said today. It rose 8.84 percent the previous week. Consumer-price gains in the world’s second- most populous nation remain above the level the central bank deems acceptable, Governor Duvvuri Subbarao said this week.

The government had earlier budgeted 4.17 trillion rupees of borrowing in the year to March, 2012, of which it raised 2.5 trillion rupees between April and September.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, rose 10 basis points to 7.97 percent, according to data compiled by Bloomberg.

--Editors: Andrew Janes, Abhay Singh

To contact the reporters on this story: Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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