Mumbai: India is struggling to sell its bonds at recent auctions, and that’s even before Prime Minister Narendra Modi embarks upon a record borrowing program.
Underwriters rescued a longer-tenor bond sale on Friday following poor buying support that’s seen the bid-to-cover ratio -- a gauge of demand -- drift lower in the last two auctions from levels seen in January.
Concerns about an over-supply of longer maturity bonds have increased after the government on Feb. 1 said it plans to borrow almost $100 billion for the year starting April 1. At the same time, the nation’s sovereign yield curve has steepened after the central bank sprung a surprise rate cut two weeks ago and left the door open for another reduction as early as April.
“There’s been poor demand from banks and investors at the longer end of the curve," said Kuldeepsinh Jagtap, senior vice president at ICICI Securities Primary Dealership Ltd. “Longer-end bonds may continue to see relatively poor bidding till the borrowing calendar for first half of fiscal 2020 is announced."
Yield on the most-traded 2028 sovereign bond has climbed 21 basis points since the year started, raising borrowing costs for the government. The next auction is due on Feb. 22. The local market was closed Tuesday for a holiday.
Investors are also contending with an increased supply of state debt. The Reserve Bank of India will sell up to 2.26 trillion rupees of bonds in the January-March period, more than market expectations of up to 2 trillion rupees, according to Edelweiss Securities Ltd.
“The key positive is a more dovish RBI, but support for bonds won’t extend beyond the one-two year tenors," Eugene Leow, a rates strategist at DBS Bank Ltd. in Singapore said.
Oil prices rebounding to a three-month high of $55.9 a barrel is another negative, and if they hold at those levels, or advance, could dash market expectations of an April rate cut.
“It is a small dampener perhaps," said Leow. “I would get more worried when Brent crude prices are closer to $75 a barrel."