Mumbai: India’s 10-year bond yields were at a six-week high on Tuesday, after an official at the finance ministry said the government may borrow more than planned in June for a second month.
Benchmark notes due in 2019 erased the day’s gains on concerns increasing supply of debt will damp demand for existing securities and push borrowing costs higher. The finance ministry is in consultations with the Reserve Bank of India (RBI) to decide the extra amount it may raise in June, said the official, who declined to be identified. India has already increased debt sales for this month to Rs54,000 crore, from a previously scheduled Rs48,000 crore.
“The market reversed early gains following comments from the finance ministry about extra borrowings in June,” said Srinivasa Raghavan, head of treasury at Mumbai-based IDBI Gilts Ltd, a primary dealer that underwrites government debt sales. “Traders don’t want to hold on to positions as supply rises.”
The yield on the 6.05% note due February 2019 was little changed at 6.56% in Mumbai, according to RBI’s trading system. The price was at Rs96.40 per Rs100 face amount.
The government plans to borrow Rs12,000 crore at an auction scheduled between 29 May and 5 June, and Rs36,000 crore more next month, according to the borrowing calendar. It plans to raise a record Rs3.62 trillion from bond sales in the fiscal year that started on 1 April.
The cost of five-year swaps, or derivative contracts used to guard against rate fluctuations, dropped. The rate, a fixed payment made to receive floating rates, declined to 6.01%, from 6.16% on Monday.
“The pressure of high supply is going to be much more and prolonged now,” said Akhilesh Gupta, who helps manage the equivalent of $430 million in assets at Aviva Life Insurance Co. India Ltd. “Bond investors will be concerned that overshooting the target will add to the already existing uncertainty.”