Indian rupee banknotes and coins are arranged for a photograph in Mumbai, India. (Photographer: Adeel Halim/Bloomberg)

No Good News for India's Bonds Means Yields Set to Grind Higher

(Bloomberg) -- It’s going to be one long grind up for Indian sovereign bond yields from here.

With the market reeling under an increased supply from states and concerns over a widening fiscal gap, a possible rate cut by the Reserve Bank of India had kept the bulls’ hopes alive. But the government’s ambitious plan to sell more debt to finance a 2.11 trillion rupees ($32 billion) injection into state-owned banks has probably put paid to that.

Bolstering bank balance sheets is meant to spur growth, and that means the RBI is unlikely to lower its repo rate, according to Indranil Pan and Aditya Vyas, economists at IDFC Bank Ltd. The analysts raised forecasts for the 10-year yield to climb as high as 6.95 percent by March, from a previous upper range forecast of 6.75 percent.

“It is essentially the fear of increased supply once banks start down-selling the recapitalization bonds,” said Killol Pandya, Mumbai-based head of fixed income at Peerless Funds Management Co. “It is difficult to see a rate cut in December.”

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