India Primary Dealers Seek 46-Fold Higher Fees For Debt-Sale
India Primary Dealers Seek 46-Fold Higher Fees on Debt-Sale Woes
(Bloomberg) -- Primary dealers asked for underwriting fees 46-times higher than normal in the nation’s first sovereign bond auction for the fiscal year, underscoring concerns over tepid demand for India’s government debt.
The dealers, who have to buy any unsold debt at the auctions, asked for extra compensation because they were worried they might get stuck with the securities. The nation’s sovereign bonds have seen the worst sell-off in two years as the government ramps up sales to fund stimulus measures for an economy heading into a rare quarterly contraction.
The commission for helping to sell 100 billion rupees ($1.3 billion) of benchmark 2029 notes jumped to 6.45 paise from 0.14 paise in the last auction in January, according to a central bank statement. The new 2022 security drew a commission of 1.15 paise, while it came in at 35 paise for the 2060 bond.
“There is a possibility that primary dealers may have to step in to rescue some part of the bond auction,” said Naveen Singh, head of fixed-income trading at ICICI Securities Primary Dealership. “The market sentiment is extremely cautious.”
The government plans to sell 190 billion rupees of bonds in total on Thursday. If it accepts higher borrowing costs in order to fill order books, that may diminish the impact of the central bank’s 75 basis points rate cut last month.
Yields on the benchmark 10-year bond have climbed about 30 basis points in the last three trading sessions. It rose by four basis points to 6.48% Thursday. Indian markets are shut on Friday for a local holiday.
Massive Debt Sales
The federal government said last week it will sell 4.88 trillion rupees of bonds in the six months to September, the first phase of a record borrowing plan. That, along with Treasury bill sales, translates to a weekly supply of at least 450 billion rupees of securities versus 370 billion rupees in the year-ago period.
In addition to the central government, Indian states also plan to auction about 1.3 trillion rupees of debt in the April-June quarter, higher than the 1.1 trillion rupees in the year-ago period. The cutoff yields for some states surged at debt auctions earlier this week to about 9%, stoking calls for the central bank to step up its bond purchases.
The substantial issuance of bonds is coming at a time when foreigners are pulling out of the local market. Foreign funds pulled about $10 billion from rupee-denominated bonds this year.
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