Bonds fall as govt plans to sell more debt

Bonds fall as govt plans to sell more debt

Mumbai: India’s 10-year bonds fell after the government said it will sell more debt this week to prevent surplus cash in the banking system from stoking inflation.

The government increased the amount of securities it will sell this week under the so-called market stabilization plan to Rs15,000 crore compared with Rs13,000 crore the previous week, the Reserve Bank of India said in a statement on 12 October after the bond market closed. The sales are in addition to the government’s annual borrowing plan.

“The capacity of investors to absorb supplies is shrinking and making yields less attractive," said Rajesh Babu, a fixed-income trader with state-owned Andhra Bank Ltd in Mumbai.

The yield on the 7.99% bond due July 2017 was held at 7.9% at close, according to the central bank’s trading system. The price fell 0.0075, or Re0.75 per Rs100 face amount, to 100.575.

The government is selling bonds to drain surplus cash as record capital flows in Asia’s third largest economy may quicken inflation.

The government will auction Rs5,000 crore each of 5.87% bonds and 11.3% notes, both due in 2010, on Thursday. It will offer Rs5,000 crore of treasury bills for draining surplus cash on Wednesday. Bloomberg