Bonds drop for 2nd day before debt auction

Bonds drop for 2nd day before debt auction

Mumbai: India’s bonds fell for a second day, pushing yields to the highest in almost two weeks, as investors sold before a debt auction on Friday.

The benchmark 10-year notes ended a two-week advance as the government sold more securities than it previously planned for the second consecutive time after an auction was cancelled in August.

The government sold Rs12,000 crore of bonds on Friday, Rs4,000 crore more than planned. It has scheduled to borrow a record Rs4.51 trillion in the fiscal year ending 31 March. “It is becoming difficult to manage the supply with not many positive factors to look forward to," said Kamlesh Chand, a trader at IndusInd Bank Ltd in Mumbai. “Rising concerns because of the supply are getting reflected in yields rising."

The yield on the 6.90% note due July 2019 rose six basis points to 7.17% at close in Mumbai, the highest since 14 September, according to the central bank’s trading system. The price fell 0.41 per Rs100 face amount, to 98.14.

The government sold, as planned, Rs6,000 crore of notes due 2017, Rs4,000 crore of debt maturing in 2020 and Rs2,000 crore of bonds due in 2032, the Reserve Bank of India (RBI) said on Friday. RBI, which manages government debt sales, rejected bids at a bond auction on 7 August, without providing details. It had planned to raise Rs12,000 crore. Bonds rose earlier in the day on speculation RBI won’t increase borrowing costs this year.

The cost of five-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, declined. The rate, a fixed payment made to receive floating rates, fell to 6.56% from 6.58% on Thursday.