India Bonds Complete Worst Month Since May 2009 on Oversupply

India’s benchmark 10-year bonds completed their worst month since May 2009 on speculation the government’s record debt-sale target will damp demand.

Yields were at a three-year high today after the central bank boosted borrowing costs for the 13th time since the beginning of 2010 last week. The finance ministry raised its bond-sale target for the six months through March 2012 by 32 percent on Sept. 29.

“Supply concerns have pushed up yields this month,” said R.S. Chauhan, Mumbai-based chief dealer of fixed-income and currencies at State Bank of Bikaner & Jaipur. “The interest- rate increase has also added to costs for buying debt.”

The yield on the 7.8 percent securities due April 2021 rose 44 basis points this month to 8.88 percent in Mumbai, according to the central bank’s trading system. The rate rose three basis points, or 0.03 percentage point, today to the highest level for a benchmark 10-year security since August 2008.

Primary dealers in India bought unsold government debt at auctions for the third consecutive time this month. The underwriters bought 1.49 billion rupees ($30 million) of bonds due in 2017 on Oct. 28, according to a central bank statement. The finance ministry sold 150 billion rupees of debt that day.

The finance ministry increased its debt-sale target last month to 4.7 trillion rupees from an earlier goal of 4.17 trillion rupees. The repurchase rate, at which lenders borrow overnight from the central bank, is 8.50 percent.

The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, rose 46 basis points this month to 8.25 percent, according to data compiled by Bloomberg. It fell two basis points yesterday.

To contact the reporter on this story: V Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net