BackBond yields drop after govt cuts borrowing plan
The yield on 10-year bonds fell 16.6 basis points, the most since 15November 2016, to close at 7.222%, compared to its previous day close of 7.269%
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Mumbai: India’s 10-year bond yield slumped 17 basis points on Wednesday, its biggest drop in 14 months, after the government said it will lower its additional borrowing programme to Rs20,000 crore from the Rs50,000 crore notified earlier.
The yield on 10-year bonds fell 16.6 basis points, the most since 15 November 2016, to close at 7.222%, compared to its previous day close of 7.269%.
A basis point is one-hundredth of a percentage point. Bond yields and prices move in opposite directions.
The rupee gained 0.24% to 63.89 a dollar on Wednesday, from its close of 64.04 on Tuesday, when it fell 0.9%.
“Reduction in the additional borrowings size should provide relief to the bond markets in the short term. Expectations of a special dividend from the RBI (Reserve Bank of India) might partly help to contain borrowings to that extent. Probably a seasonally strong March quarter for direct tax collections is also being factored in," said Radhika Rao, economist at DBS Bank Ltd.
“Odds of a miss in the fiscal year 2018 target is still a risk, considering the math until December, below-goal non-tax receipts, recent speculation over further cuts in GST rates on selected items ahead of the budget and slower nominal GDP growth," Rao added.
Subhash Chandra Garg, secretary, department of economic affairs, ministry of finance, said in a tweet that the government had reassessed additional borrowing requirements, taking note of revenue receipts and expenditure patterns.
The reduction follows expectation of a higher dividend from RBI, Bloomberg reported, citing people it didn’t identify. On 27 December, the government had said it would borrow an additional Rs50,000 crore through bonds to fund its fiscal deficit.
“The news is oasis in the desert, considering rising oil price, inching global yields and low appetite for bonds. It should restore market confidence for some time and is likely to anchor sharp north-bound movements in yields. However, uncertainty over next year’s fiscal deficit will remain," said Soumyajit Niyogi, associate director at India Ratings and Research Pvt. Ltd.
On Tuesday, the bond yield surged 10 basis points after RBI deputy governor Viral Acharya said banks can’t continue to rely on the regulator to manage interest rate risks. Acharya's comments followed a report in The Economic Times that public sector banks had sought RBI’s approval to spread treasury losses in the December quarter over two quarters, intended to limit mark-to-market losses in their investment portfolios.
The bond market has already been under pressure amid concerns about a wider budget deficit, excessive supply of debt and accelerating inflation. The government was unable to sell nearly 70% of the Rs15,000 crore of debt it offered on 29 December and a fifth of Rs18,000 crore of bonds remained unsold on 5 January.
The benchmark Sensex rose 0.89%, or 310.77 points, to 35,081.82 points. So far in 2018, it has gained 2.5%.
So far this year, the rupee has gained 0.2%, while foreign investors have bought $278.70 million and $384.10 million in equities and bonds, respectively.
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