Bloomberg News

Indian Bond Yields Rise to Highest Level Since 2008 on Debt Plan

October 05, 2011

Oct. 5 (Bloomberg) -- India’s 10-year bonds declined, pushing yields to the highest level since 2008, on concern increasing government debt sales will damp demand for existing notes.

Finance Minister Pranab Mukherjee said in an interview telecast by Bloomberg UTV yesterday that the nation may find it hard to meet its budget-deficit target in the current fiscal year. The government plans to raise 2.2 trillion rupees ($44.5 billion) selling bonds in the six months ending March 31, more than the budgeted 1.67 trillion rupees, R. Gopalan, secretary, Department of Economic Affairs, said last week. The government raised 2.5 trillion rupees in the first six months of the year.

“The sentiment toward bonds will remain bearish for some time as the deficit situation doesn’t look encouraging,” said Krishnamurthy Harihar, treasurer at FirstRand Ltd. in Mumbai. “The debt supplies will keep yields at higher levels.”

The yield on the 7.8 percent securities due April 2021 rose three basis points, or 0.03 percentage point, to 8.58 percent as of the 5 p.m. close in Mumbai, according to the central bank’s trading system. That is the highest level for benchmark 10-year rates since September 2008, according to data compiled by Bloomberg.

Mukherjee aims to narrow the government’s shortfall to a four-year low of 4.6 percent of gross domestic product in the fiscal year that ends in March 2012, according to budget estimates published in February.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, rose three basis points to 7.91 percent, according to data compiled by Bloomberg.

--Editors: James Regan, Anil Varma

To contact the reporter on this story: V Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net

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


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