Prices of 13-year bonds decline as lower yields deter investors

Prices of 13-year bonds decline as lower yields deter investors

Mumbai: India’s 13-year bonds fell for the first time in five days on Wednesday, on speculation investors reduced purchases of the securities after yields had the biggest four-day decline in two-and-a-half years.

Banks and securities firms may have scaled back investment in debt due in 2021 after yields lost 69 basis points in the four trading days through 20 October. Bonds also fell after the government said its budget deficit may exceed its target this year. The bond market was shut on Tuesday as a strike at the Reserve Bank of India (RBI) disrupted payment and settlement systems.

“Yields have fallen quite sharply in recent days, and people are taking some profit and consolidating positions before investing more," said Baljinder Singh, a trader at state-owned Andhra Bank in Mumbai. “The finance minister’s comments about the budget deficit and borrowing are also damping demand."

The yield on the 7.94% note due May 2021 rose 12 basis points to 7.82% at close in Mumbai, according to RBI’s trading system. The price fell 0.97 per Rs100 face amount to 100.93. A basis point is 0.01 percentage point.

Bond yields fell this week after RBI cut its benchmark rate on 20 October to ease the biggest cash crunch since at least 2000. The central bank lowered its key repurchase rate by 1 percentage point to 8%.

The benchmark 10-year bond didn’t trade on 20 October, when RBI slashed interest rates, because of a coupon payment. The yield on the note dropped 13 basis points on Wednesday after missing the rally on 20 October.

Meanwhile, the government may fail to meet its budget deficit target for fiscal 2009 because of the global crisis that has forced the government to borrow and spend more, finance minister P. Chidambaram said on Wednesday.

The government plans to raise as much as Rs39,000 crore from debt sales in the second half of the year ending 31 March, the finance ministry had said on 26 September.

The Centre will exceed that target by 71%, raising Rs67,000 crore for the half-year period, according to a Bloomberg survey of traders and economists conducted last month. That would increase the amount raised for this fiscal to Rs1.73 trillion, surpassing the target of Rs1.45 trillion.