India plans Rs 7.24 trillion of bond sales in fiscal first half

By Siddhartha Singh and Subhadip Sircar,

India announced a fiscal first-half borrowing plan largely in line with expectations, a move likely to comfort a bond market facing near-record debt sales.

The government will auction 7.24 trillion rupees ($99 billion) of bonds in the six months to September, or about 60% of the full-year target, Economic Affairs Secretary Tarun Bajaj said Wednesday. That compares with 60% to 65% of total debt the government usually issues for the period.

Also read: India retains inflation target, keeps borrowing as planned

The market still has to contend with a large supply of bonds in the fiscal year starting April, adding to a glut of paper made more unappealing by rising US yields. Sovereign bonds completed the worst quarter in almost three years amid the unprecedented debt supply and concern about the central bank rolling back some of last year’s pandemic measures.

“There is nothing much to cheer about” as the borrowing plan is largely along expected lines, said Harish Agarwal, a trader with FirstRand Bank in Mumbai. “Going forward auctions will remain under pressure, and it is very important to see what kind of open-market opeartions are there and how frequent they are.”

He predicts yields will stay in the range of 6.1%-6.2%.

The government will borrow between 260 billion rupees to 320 billion rupees each week, according to a statement issued after the close of markets. It will borrow 1.68 trillion rupees via 10-year bonds.

The yield on benchmark 10-year government bonds rose two basis points to 6.17% on Wednesday, and surged by 30 points in the March quarter, the biggest jump since the June 2018 period. Yields eased in March after the central bank bought more liquid papers in Operation Twists and the government cancelled an auction last week.

India will stick to its budgeted full-year borrowing target of 12.1 trillion rupees, Bajaj said, adding the central bank will take action to ensure yields remain in check.

Underwriters had to rescue a string of sales early this year. Governor Shaktikanta Das has repeatedly assured ample liquidity and vowed to buy at least 3 trillion rupees of bonds in the new financial year.

Borrowing details:

Security	Borrowing (in billions of rupees)
2-year	360
5-year	1430
10-year	1680
14-year	1300
30-year	910
40-year	1080
Floating bonds	480

The excess supply of government and state bonds is estimated to be close to 5 trillion rupees for the next fiscal year, more than what the market can absorb, according to Standard Chartered Plc.

“This demand-supply mismatch will persist, and will be a key driver for bonds in the medium term,” Parul Mittal Sinha, head of macro trading for India and South Asia at the lender, said before the release of the borrowing plan.

Separately, the RBI said it will retain the foreign investment limit for corporate bonds at 15% of outstanding for the fiscal 2022. The limits for sovereign and state debt are being retained for now.