Bonds Rally in India on Relief Over Government’s Borrowing Plans
The portrait of Mahatma Gandhi is displayed on Indian rupee banknotes in an arranged photograph in Bangkok, Thailand. (Photographer: Brent Lewin/Bloomberg)

Bonds Rally in India on Relief Over Government’s Borrowing Plans

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(Bloomberg) -- Indian bonds rallied after Prime Minister Narendra Modi’s government kept its borrowing in line with estimates, providing relief to a market that’s endured three months of declines.

Ten-year yields slid as much as 11 basis points to 6.49% on Monday before trading at 6.51% at 10:20 a.m. in Mumbai. On Friday, benchmark bonds capped a third straight month of declines.

The administration will borrow 7.8 trillion rupees ($109 billion) in the year starting April 1, in line with estimates compiled by Bloomberg News. Debt sales for the current fiscal were maintained at 7.1 trillion rupees, quelling fears of the government taking on an extra borrowing of as much as 500 billion rupees.

“The market was scared before the budget but no negative surprise has come our way,” said Vijay Sharma, executive vice president for fixed-income at PNB Gilts Ltd. in New Delhi. “The budget and the fact the RBI has been trying its best to support the yields should be bond-positive in the coming days.”

Further, the move to open up of some sovereign bonds to full overseas ownership -- a likely precursor to listing Indian debt in global indexes -- is good news to a market where benchmark 10-year yields rose 15 basis points in the November-January period on fears the government will blow out the budget to revive economic growth.

READ: India Plans to Raise Access to Rupee Debt for Overseas Investors

Overseas investors will also be allowed to own 15% of corporate debt from 9% currently.

Bonds Rally in India on Relief Over Government’s Borrowing Plans

“We could see a positive mood in the bond market in the short term,” said Mahendra Jajoo, head of fixed income at Mirae Asset Global Investments Co. in Mumbai.

For the longer term, the market will still have to depend on the central bank’s open market debt purchases to support bonds. The Reserve Bank of India has been buying longer bonds and selling very-short end ones since mid-December to pull down term spreads and spur lending.

Other insights:

  • Budget deficit for the year starting April 1 pegged at 3.5% of GDP. That compares with revised estimate of 3.8% for this fiscal year, in line with forecasts in Bloomberg survey.
  • Government plans net borrowings of 5.36 trillion rupees for FY21, Finance Minister Nirmala Sitharaman said on Saturday.
  • India plans debt ETFs of government bonds.
  • Bond switches for next fiscal estimated at 2.7 trillion rupees vs 1.65 trillion rupees for FY20.

©2020 Bloomberg L.P.

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