Bonds in India Slide as Modi Stimulus Adds to Market Angst
“Fixed income markets are likely to rethink the market yield levels,” analysts at Citigroup Inc. wrote in a note.
(Bloomberg) -- Sovereign bonds declined in India as traders braced for a further jump in government borrowing after Prime Minister Narendra Modi announced an ambitious 20 trillion rupees ($265 billion) package to deal with the fallout of the coronavirus pandemic.
The benchmark 10-year bond yield rose 6 basis points to 6.22% at 10 a.m. in Mumbai. Yields rose by the most in thee years on Monday following a 54% increase in government borrowing. The rupee gained 0.3% to 75.29 per dollar, while the S&P BSE Sensex index of shares jumped by the most in two weeks.
The package, amounting to 10% of India’s gross domestic product, includes the previous 1.7 trillion rupee stimulus announced in late March and the central bank’s measures including provision for cheap cash to banks and the reduction in its cash reserve ratio.
“Fixed income markets are likely to rethink the market yield levels,” analysts at Citigroup Inc. wrote in a note. “Yields are likely to push higher by 20-25 basis points on steeper curve with bonds underperforming the swaps.”
Benchmark yields have risen 20 basis points to 6.16% in last two sessions as traders await measures from the central bank to help mop up debt after the government raised its borrowing target to 12 trillion rupees for the year that began on April 1.
Barclays Plc. estimates that 9 trillion rupees of measures have already been undertaken and there’s space for another 10.7 trillion rupees of spending or support. Additional borrowing and the recent increase in fuel tax has opened up room for the government to spend close to 1.9 trillion rupees after factoring in the loss in revenue, it said.
A major chunk of the fiscal package may be in the form of loan guarantees and equity infusion that won’t require direct spending, according to Edelweiss Securities Ltd.
“The RBI’s stance on the fiscal funding would become crucial amid impending overhangs on the government bond market,” Madhavi Arora, economist at Edelweiss, wrote in a note.
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