Mumbai: The 10-year bond yields fell 28 basis points, biggest decline since November 2013, on Tuesday after the government announced lower-than-expected borrowing programme for the first half of the fiscal year 2019.
At 2pm, yield on India’s benchmark 10-year government bonds was trading at 7.335%, down 28.40 basis points—its biggest decline since 25 November 2013—compared to its Monday’s close of 7.623%. Bond yields and prices move in opposite directions.
Meanwhile, rupee erased all the morning gains and was trading little changed against US dollar. The home currency was trading at 64.87 a dollar, down 0.01% from its previous close of 64.86.
“Two critical deterrents we have been highlighting for quite sometime, too much issuance in the SLR Bond space and bulging up issuance in 10 years bucket, both of them mostly caused by precipitous rise in state development loans (SDL). The change in borrowing patterns has made an attempt to address one issue by lowering pressure on 10 years bucket, which is poster boy in the Indian Bond market,” said Soumyajit Niyogi, associate director at India Ratings and Research Pvt. Ltd.
“Overall conducive for bond markets, although higher borrowings through long end likely to exert pressure on long end corporate bonds and SDLs curves,” Niyogi added.
On Monday, the government said that it will raise Rs2.88 trillion by selling bonds in the six months to 30 September, about 48% of its budgeted amount for the full fiscal year. This is the lowest first-half borrowing in the last 10 years in percentage terms.
For FY19, the total gross borrowings through government securities is budgeted at Rs6.05 trillion, higher than previous year’s revised estimated of Rs5.99 trillion.
According to brokerage firms Kotak Economic Research and IDFC Securities, cut in borrowing supply may push yields to 7.20-7.50% in the first half of 2019.
Since last six months, bond yields were under pressure and have surged over 100 basis points due to concerns of rising crude oil prices, widening current account deficit, reduction in banking liquidity and the prospect of faster rate hike by the US Federal Reserve.
However, analyst were cautious on the long term outlook and believes that second half may pressurized bond yield again due to risk evolving in the form of heavier supply, fiscal slippages if GST revenues show weaker trend, inflation situation, consequent reaction of the RBI and state elections followed by general elections in mid-2019.