India Cancels Benchmark Bond Sale as Demand Wanes Before Budget
Indian two thousand and five hundred rupee banknotes are arranged for a photograph in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

India Cancels Benchmark Bond Sale as Demand Wanes Before Budget

India’s central bank didn’t sell any benchmark notes at its weekly auction, highlighting weak demand ahead of the federal budget that is widely expected to boost spending.

The Reserve Bank of India rejected all bids for the 80 billion rupees ($1.1 billion) of 5.85% 2030 bonds it had sought to sell, according to a statement Friday. It also asked underwriters to pick up nearly all of the 110 billion rupees of the 5.15% 2025 bonds. In all, the central bank sold 209.2 billion rupees of bonds versus 270 billion rupees planned.

Market yields fell immediately after the results though its unclear yet if the RBI will adjust this amount in following auctions. There’s a glut of paper as the government borrows a record 13.1 trillion rupees in the year through March and Finance Minister Nirmala Sitharaman is expected to announce a similar number for next year when she unveils the budget on Feb. 1.

India Cancels Benchmark Bond Sale as Demand Wanes Before Budget

The yield on the 5.85% 2030 bond was down 2 basis points to 5.91%. The most traded 5.77% 2030 yield also fell 2 basis points to 5.94%. Trading was extended by an hour due to the delay in the auction results, traders said.

“It’s a difficult situation, when the RBI doesn’t want to give higher yields at the auction and at the same time there is slight nervousness with regard to open-market purchases,” said Anoop Verma, senior vice president at DCB Bank Ltd. in Mumbai. “The RBI will need to come out with an OMO calendar and also raise the size of purchases to 200 billion rupees to give confidence to the market.”

The delay in announcing an open market purchase last week saw yields rise, after which RBI came in with a 100 billion rupee buy program and probably also bought debt in the secondary market. It is yet to announce a similar purchase for next week.

©2021 Bloomberg L.P.

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