India bond traders nudge Centre to lower short-term borrowings in October-March: Report

Since India's bond yield curve has remained flat for the last few months, cutting down supply at the shorter end could keep short-term yields in check, traders said during a meeting between primary dealers and the RBI.

Indian bond market participants have urged the government to lower short-term borrowings and raise more funds via longer-dated securities in the second half of the financial year, four senior treasury officials told Reuters.

The suggestion came during a meeting between primary dealers and the Reserve Bank of India ahead of finalising the second-half borrowing calendar, said the officials with direct knowledge of the matter.

"One of the major suggestions was to increase the supply in the ultra long end of the bond curve, while reducing the same from short to medium term," one of the officials said.

India aims to borrow a gross 15.43 trillion rupees via a sale of bonds this financial year.

About 42 per cent of that is due to be borrowed in October-March, per the current schedule.

Insurance companies, provident funds as well as pension funds have been regular bidders at primary auctions.

"With inflows likely continuing, they would be easily able to absorb the rise in 30-year and 40-year bonds," another official said.

All the officials Reuters spoke to requested anonymity as they are not authorised to speak to the media.

Since India's bond yield curve has remained flat for the last few months, cutting down supply at the shorter end could keep short-term yields in check, traders said.

The government aims to raise 28.5 per cent of the borrowing through three-year to seven-year papers in the first half.

The RBI is likely to meet other bond market participants in the coming days, treasury officials said.

A trader at another primary dealership, yet to meet central bank officials, said the firm would suggest introducing a 20-year bond to plug the gap between 14-year and 30-year papers.

A similar suggestion made ahead of the start of this fiscal year was not implemented. Traders said this could be because adding a 20-year bond would reduce demand for the 14-year segment.

While the first round of consultations took place on Wednesday, the RBI will meet other participants on Thursday and Monday, traders said.

The RBI did not immediately reply to a Reuters email seeking comment.