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India Bond Yield Near 2-Month High on Borrowing Increase Concern

India’s 10-year bonds ended little changed, with the yield holding near the highest level in two months, on concern the government may borrow more than budgeted.

Policy makers will decide by the end of January or early February if India will raise a further 250 billion rupees ($4.6 billion) by selling government securities or treasury bills, two Finance Ministry officials with direct knowledge of the matter said, asking not to be identified as they aren’t authorized to speak on the subject. The notes had earlier gained on speculation overseas funds will boost holdings after the central bank held interest rates at the highest level among Asia’s biggest economies.

“There is still uncertainty about the fiscal deficit and borrowing,” said Upasna Bhardwaj, an economist at ING Vysya Bank Ltd. (VYSB) in Mumbai. “I do not see much downside for yields.”

The yield on the benchmark 8.15 percent bonds due June 2022 was little changed at 8.20 percent from Nov. 2 in Mumbai, according to data compiled by Bloomberg. The rate touched 8.22 percent on Oct. 31, the highest level since Sept. 3.

Global investors bolstered ownership of rupee-denominated debt by $1.3 billion in October, the biggest increase since February, according to data compiled by Bloomberg. The extra yield on Indian 10-year notes over similar-maturity U.S. Treasuries has climbed 21 basis points from a seven-month low of 630 reached on Oct. 18. The Reserve Bank of India held its benchmark rate at 8 percent at an Oct. 30 review and raised its inflation forecast for March to 7.5 percent from 7 percent.

Central bank rates are at 3 percent in China, 2.75 percent in South Korea and 5.75 percent in Indonesia.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, rose one basis point, or 0.01 percentage point, to 7.77 percent, data compiled by Bloomberg show. It rose 17 basis points last week in the biggest increase since the five-day period ended June 22.

To contact the reporter on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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