Bloomberg News

Indian Bonds Drop Most in 3 Weeks on Debt Sales, Rate Increase

October 28, 2011

Oct. 28 (Bloomberg) -- India’s 10-year bonds declined the most in three weeks on speculation record government debt supplies this fiscal year will deter investors from adding to their holdings.

Yields rose to a three-year high as the finance ministry sold 150 billion rupees ($3.1 billion) of notes due in 2017, 2022, 2027 and 2040 today, part of the government’s 4.7 trillion rupee borrowing plan for the year ending March 2012. The central bank boosted its benchmark interest rate for the 13th time since March 2010 on Oct. 25.

“The flood of sales is negative for bonds,” said Anoop Verma, a fixed-income trader at Development Credit Bank in Mumbai. “The rate increase has also made it more expensive to buy debt with borrowed funds.”

The yield on the 7.8 percent securities due April 2021 rose nine basis points, or 0.09 percentage point, to 8.85 percent in Mumbai, according to the central bank’s trading system. The rate was the highest for a benchmark 10-year bond since August 2008, according to data compiled by Bloomberg.

Primary dealers in India bought unsold government debt at auctions for the third consecutive time this month in a sign the notes aren’t attracting demand at yields accepted by the nation’s central bank.

The underwriters bought 1.49 billion rupees of bonds due in 2017 today, according to a central bank statement today. The dealers bought 31.1 percent, or 40.4 billion rupees, of the 130 billion rupees of notes offered at a previous auction on Oct. 14. They bought 6 percent of the 150 billion rupees of debt offered on Oct. 7.

The finance ministry increased the debt-sale target last month. The earlier estimate was 4.17 trillion rupees.

The repurchase rate, at which lenders borrow overnight from the central bank, is 8.5 percent.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, rose 12 basis points to 8.27 percent, according to data compiled by Bloomberg.

--Editors: Simon Harvey, Ven Ram

To contact the reporter on this story: V Ramakrishnan in Mumbai at

To contact the editor responsible for this story: Sandy Hendry at

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