India Bonds Gain As Lower Debt Supply Boosts Sentiment

India announced a borrowing plan for the first half of the next fiscal year that's lower than market expectations, triggering gains in longer-maturity bonds.

The government plans to sell eight trillion rupees ($93.2 billion) of bonds in the six months to September, the Ministry of Finance said in a statement after trading ended on Thursday. That's lower than the 8.4 trillion rupees estimated in a Bloomberg News survey.

Lower borrowings may help bonds extend this year's gains driven by growing bets of a cut in interest rates at the Reserve Bank of India's policy review on April 9.

“The total borrowing is a bit lower than market expectation, and long end as a proportion of overall supply has been adjusted lower,” said Suyash Choudhary, head of fixed income at Bandhan AMC Ltd. “The market price action is reflecting both these.”

The yield on the ultra-long 7.34% 2064 bond fell four basis points to 6.95% on Friday, while the yield on the 10-year note was down two basis points.

New Delhi plans to sell about 35% of the bonds in the 30-50 year segment of total issuances in the first half starting April 1, as against 38% a year ago, according to the statement. The government aims to sell around 25% of the bonds in the less-than-10-year bucket, while the benchmark 10-year bond will account for 26.2%, the government said.

“We expect bond yields to drift lower, supported by policy rate and stance easing, liquidity-easing measures and foreign inflows through the course of the year,” Upasna Bhardwaj, chief economist at Kotak Mahindra Bank Ltd., wrote in a note.

The yield on benchmark 10-year bond is likely to trade in the 6.35%-6.65% range in the fiscal first half, she wrote.

The first-half borrowing will account for 54% of the full-year target of 14.8 trillion rupees, according to the statement. That compares with about 60% of total debt the government usually issues for the period.

RBI Measures

The RBI has injected over $60 billion worth of liquidity over the last two months to curb the cash crunch that widened to a more-than-decade high of 3.3 trillion rupees in January. It was at 200 billion rupees as of March 26, as per a Bloomberg Economics index. 

Indian bonds have also benefited in recent years from a surge in purchases from insurance and pension funds. Foreigners have also raised holdings of sovereign bonds with JPMorgan Chase & Co. adding India to its emerging market debt indices in June last year. 

While foreign investor interest may slow with India gaining full weight in the JPMorgan index in March, the central bank is expected to remain a big buyer of local bonds in the coming fiscal year, according to IDFC First Bank Ltd.

The government will sell 190 billion rupees of treasury bills for thirteen weeks through April-June, according to the statement.