Traders wary as India sets $2.9 billion bond auction

Traders wary as India sets $2.9 billion bond auction

New Delhi: India will sell 15,000 crore ($2.9 billion) of bonds on 30 December in an unscheduled auction to partially offset a 4,000 crore auction cancelled last month and to fund an “emerging cash requirement", the finance ministry said.

Traders said the move would likely unsettle a market already worried that India will be forced to announce additional borrowing for the current fiscal year as slowing economic growth eats into tax revenue and puts its fiscal deficit target in jeopardy.

The government will sell 3,000 crore each of 7.99% 2017 bonds, 8.28% 2027 bonds and 8.83% 2041 bonds, as well as 6000 crore of 9.15% 2024 bonds, the ministry said in a statement on Monday.

The benchmark 10-year government bond yield, which closed at 8.49% on Monday before the auction announcement, is expected to open at least five basis points higher on Tuesday, two traders at foreign banks said.

Traders said they would watch for possible buyback announcements on Tuesday for clues on the market’s direction.

Liquidity in the banking system remained tight on Monday with banks borrowing 1.429 trillion ($27.06 billion) from the Reserve Bank of India’s repo window, significantly more than the central bank’s comfort level of around 60,000 crore.

The ministry said the auction is a partial modification of its issuance calendar due to cancellation on 11 November of an auction of 7.99% 2017 bonds.

Last week, brokerage CLSA cut its forecast for Indian economic growth to 6.7% for the current fiscal year from its earlier projection of 7.3%, and revised its fiscal deficit forecast to around 5.5% of gross domestic product from 5.2%.

The government is widely expected to miss its target of paring its deficit to 4.6% of gross domestic product in the year ending March.