Bloomberg News

India’s 10-Year Bond Yield Rises to 3-Year High Before Auction

October 04, 2011

Oct. 4 (Bloomberg) -- India’s 10-year bonds fell for a sixth day, the longest losing streak in three months, on speculation demand for existing securities will decrease as the government boosts debt sales.

Yields climbed to a three-year high after the finance ministry said yesterday it will offer 150 billion rupees ($3 billion) of securities on Oct. 7, compared with the 110 billion rupees it raised at the last auction on Sept. 9. The nation plans to borrow 2.2 trillion rupees in the six months through March, 32 percent more than a previous target. That means India will miss a goal to cut its budget deficit to 4.6 percent of gross domestic product, according to Standard & Poor’s and Fitch Ratings.

“The market is concerned about the supply of bonds,” said J. Moses Harding, Mumbai-based executive vice president at IndusInd Bank Ltd. “The 10-year yield could rise as high as 8.65 percent in the weeks ahead.”

The yield on the 7.8 percent securities due April 2021 was little changed at 8.54 percent at the 5 p.m. close in Mumbai, according to the central bank’s trading system. It had earlier risen to 8.55 percent, the highest level for benchmark 10-year rates since September 2008, according to data compiled by Bloomberg.

The government’s shortfall may increase to 5.5 percent of GDP in the fiscal year through March from 4.7 percent in the previous 12 months, said Andrew Colquhoun, Hong Kong-based head of Asia-Pacific sovereign ratings at Fitch. The company yesterday said that any further deterioration in government finances may “weigh” on India’s debt rankings, even though last week’s decision to increase the annual borrowing plan was expected.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, fell three basis points to 7.88 percent, according to data compiled by Bloomberg.

--Editors: Anil Varma, Sandy Hendry.

To contact the reporters on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net

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


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