Bloomberg News

Indian Bond Yields Drop to 31-Month Low as Borrowing Program Cut

February 20, 2013

Indian bonds due 2022 rose, sending the benchmark yield to the lowest level since July 2010, after the government canceled its final debt sale of this fiscal year.

The finance ministry scrapped a plan to issue 120 billion rupees ($2.2 billion) of securities on Feb. 22, according to a statement on Feb. 18. The offering was originally planned as part of a record 5.69 trillion rupee federal borrowing program for the year ending March 31. India’s bond and currency markets were closed yesterday for a local holiday.

“The cancellation augurs well for the bond market as this shows the government’s finances have improved,” said N.S. Venkatesh, Mumbai-based head of treasury at state-run IDBI Bank Ltd. “The outlook for debt is positive as fresh supplies are ruled out until the end of March.”

The yield on the 8.15 percent notes due June 2022 fell four basis points, or 0.04 percentage point, to 7.78 percent as of 10 a.m. in Mumbai, according to the central bank’s trading system. The rate has dropped 27 basis points this year.

Finance Minister Palaniappan Chidambaram plans to cut the fiscal deficit to 5.3 percent of gross domestic product this fiscal year and to 4.8 percent in the next. Policy makers are trying to avert a credit downgrade after Standard & Poor’s and Fitch Ratings said in 2012 that they may demote India to junk status, citing the government’s shortfall and a widening current-account gap.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, fell one basis point to 7.64 percent, according to data compiled by Bloomberg.

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

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net


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