News ID: 259113
Published: 1026 GMT September 23, 2019

Bonds rise in India on government assurance on borrowing target

Bonds rise in India on government assurance on borrowing target
HEMANT MISHRA/MINT

Sovereign bonds rallied in India after the government said that it will stick to its record borrowing target for now, allaying fears of mounting fiscal risks for the administration after the $20 billion tax-cut stimulus.

The fiscal gap goal will be reviewed closer to the federal budget due in February, Finance Minister Nirmala Sitharaman told reporters. A decision on whether to borrow more than the budgeted 7.1 trillion rupees will be taken later in the financial year, she said, Bloomberg wrote.

The unexpected tax cuts announced Friday to revive India’s sluggish economy will cost the government 1.45 trillion rupees in revenue.

A snap poll of economists by Bloomberg News showed that the fiscal deficit might rise to 3.9 percent of the gross domestic product in the year to March, compared with a target of 3.3 percent set in July.

The benchmark 10-year yield slid three basis points to 6.76 percent. It jumped 15 basis points Friday after the announcement. The 2026 note was down five basis points to 6.62 percent at 10:21 a.m. in Mumbai. Authorities are due to announce the October-March borrowing calendar by month-end.

“The market is consolidating with a small downward bias in yields,” said Anindya Das Gupta, Mumbai-based managing director and head of treasury at Barclays Plc. “It looks like the 2H borrowing announcement will still be of 2.68 trillion rupees, albeit accelerated, keeping space for extra borrowing in February-March.”

The rupee was little changed at 70.92 per dollar.

The overhang of the extra bond sales will likely linger despite the government’s assurance, according to ING Groep NV.

“While more RBI easing is positive for the bond market, the negative from the supply overhang from a wider fiscal deficit is likely to outweigh this, and bond yields will remain under continued upward pressure,” the lender said in a note.

   
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