Underwriters Rescue India 10-Year Bond Sale Amid Supply Worries
Pedestrians walk past a sign pointing to the Ministry of Finance in New Delhi, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

Underwriters Rescue India 10-Year Bond Sale Amid Supply Worries

Underwriters rescued a sale of Indian sovereign bonds, the third such instance in five auctions, highlighting the growing anxiety about rising debt supply amid precarious government finances.

Primary dealers bought 179.7 billion rupees ($2.4 billion) out of a possible 180 billion rupees of the benchmark 10-year bond, the central bank said Friday in a release. The Reserve Bank of India sold the bond at 6.0214% cutoff yield versus 6.08% estimated in a Bloomberg survey. In all, the RBI sold 300 billion rupees of bonds across tenors.

Still, bonds gained as traders interpreted it as a signal of RBI’s discomfort with rising yields. The 10-year yield closed down one basis points to 6.04% after rising to 6.08% in session.

Underwriters Rescue India 10-Year Bond Sale Amid Supply Worries

“RBI is again signaling that the Das put is still in play,” said Pankaj Pathak, fixed income fund manager at Quantum Asset Management Ltd. in Mumbai. “The RBI is putting a lid on how much yields will rise.”

Record Borrowing

The demand for higher yields underscores concerns that the supply of both federal and state debt may be more than previously planned. The government is set to top its already enhanced 12 trillion rupees annual borrowing target after the world’s biggest lockdown decimated its revenue collection goals, Bloomberg News reported citing people familiar with the matter.

The auction rescue comes days after the central bank unveiled a series of steps to cap rising yields, including more Federal Reserve-like Operation Twists and giving banks more leeway to hold government debt without having to mark losses. Still, benchmark yields are up eleven basis points this week.

The supply worries have been exacerbated by worries over a resurgence in consumer prices, pushing back rate cut bets. Data due on Monday is likely to show that inflation printed at 6.9% in August, remaining above the central bank’s comfort zone.

©2020 Bloomberg L.P.

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