Yield Spike Just Made RBI's Job Selling Indian Debt Much Harder

(Bloomberg) -- The surge in Indian bond yields to an 18-month high is having a side effect: the nation's central bank -- the government's debt manager -- is finding it harder to clear auctions.

The government couldn't sell 73 percent of the 150 billion rupees ($2.4 billion) of debt offered Dec. 29, and last week a fifth of 180 billion rupees of bonds remained unsold. The poor demand highlights the challenge the market faces in soaking up new issuance in the coming months, according to IDFC Asset Management Ltd. and Standard Chartered Plc.

“The virtual breakdown in market risk appetite, especially since December, doesn't augur well for absorption of future bond supplies,” said Suyash Choudhary, Mumbai-based head of fixed income at IDFC Asset, which managed 714 billion rupees at the end of December.

The government will sell 930 billion rupees of bonds in the March quarter, 500 billion rupees more than initially planned. On top of this, states are due to borrow as much as 1.4 trillion rupees, up 17 percent from a year ago.

Yield on the 6.79 percent sovereign debt due 2027, the most-traded paper, climbed 86 basis points in the five months ended December.

“RBI is probably not willing to provide a very high yield,” said Gopikrishnan MS, head of foreign exchange, rates and credit trading for South Asia at Standard Chartered. “At an absolute level of 7.30%, it is just about demand and supply,” he said, referring to the newly issued 10-year bond yield.

To contact the reporter on this story: Subhadip Sircar in Mumbai at ssircar3@bloomberg.net.

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Ravil Shirodkar

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