Mumbai: Indian bonds fell, pushing yields to the highest level in almost a week, on speculation investors sold securities to free up cash for a debt auction.
The most-traded security due in 2018 fell for a second day as the government prepares to sell Rs12,000 crore of bonds on Friday.
Easing pressure: The Reserve Bank of India building in New Delhi. The central bank plans to buy Rs6,000 crore of bonds at an auction with an option to take Rs3,000 crore more from investors. Ramesh Pathania / Mint
“Investors have to churn portfolio more often since they have to absorb a large amount of supply,” said S. Srikumar, chief debt trader at state-owned Corporation Bank in Mumbai. “Yields will be pressured to rise till then.”
The yield on the 8.24% note due April 2018 climbed five basis points to 6.44% at close. The price fell 0.40, or 40 paise per Rs100 face amount, to 112.30. One basis point is a hundredth of a percentage point.
India has raised its borrowing target for this fiscal by 80% to Rs2.61 trillion. It plans to sell this week Rs8,000 core of the 6.05% bonds maturing in 2019, and Rs2,000 crore each of the 8.24% securities due in 2027 and 6.83%, 2039, notes.
The higher borrowing is to fund economic stimulus measures. The central bank will ensure the government’s borrowing programme is non-disruptive, deputy governor Shyamala Gopinath told reporters in Mumbai on Tuesday.
Bonds rose earlier on optimism that scheduled debt purchases by Reserve Bank of India (RBI) on Thursday will boost cash in the financial system and help cap yields.
RBI plans to buy Rs6,000 crore of bonds at an auction, with an option to take Rs3,000 crore more from investors depending on demand. The so-called open-market operation may prevent yields from rising, said Kamlesh Chand, a fixed-income trader at IndusInd Bank Ltd. “The central bank’s efforts are aimed more at what the yields should be rather than providing cash,” Mumbai-based Chand said. “In light of the huge borrowing the government has lined up, the central bank’s moves will help reduce pressure on bonds.”
The cost of five-year swaps, or derivative contracts used to guard against rate fluctuations, climbed for a third day. The rate, a fixed payment made in return for floating rates, rose to 5.17% from 5.02%.