Investor demand for India’s 10-year bonds in relation to debt on offer at auctions was the lowest in two months as inflation near a 13-month high and increased debt sales deterred buyers.
Lack of investor interest prompted primary dealers to purchase the unsold government securities for a second straight auction. They bought 31.1 percent, or 40.4 billion rupees ($824 million), of the 130 billion rupees of notes offered, the central bank said. The government sold 40 billion rupees of 2018 bonds, 60 billion rupees of the 2021 note and 30 billion rupees of 2027 debt.
Inflation exceeded 9 percent for a 10th straight month in September, maintaining pressure on the central bank to extend its record interest-rate increases. The Reserve Bank of India has boosted borrowing costs six times this year. The 10-year yield has increased 35 basis points since the government boosted its bond-sale target for the six months through March by 32 percent on Sept. 29.
“Investors are demanding higher yields as there is a glut of debt supplies ahead,” said Killol Pandya, the Mumbai-based head of fixed-income investments at Daiwa Asset Management (India) Pvt. “Inflation is also at elevated levels.”
The yield on the 7.8 percent notes due April 2021 rose 7 basis points, or 0.07 percentage point, to 8.79 percent in Mumbai, according to the central bank’s trading system.
The ratio at the 10-year auction was 1.79 today, the lowest since August 12, according to Bloomberg calculations based on central bank data.
India sold the 2018 bond at a yield of 8.7939 percent per 100 rupee face amount, the central bank said. It also auctioned the 2021 notes at 8.7844 percent and 2027 bonds at 8.9491 percent.