Indian Bond Yields Near 31-Month Low Ahead of Budget

The yield on India’s bonds due 2022 held near a 31-month low amid optimism the government will announce plans to rein in the budget deficit this week.

Finance Minister Palaniappan Chidambaram, who will present his annual budget to parliament on Feb. 28, will seek to narrow the shortfall to 4.8 percent of gross domestic product in the year starting April, from this year’s goal of 5.3 percent, according to a Bloomberg survey of analysts and investors. That would be the least since the 12 months through March 2008. India has scaled back energy subsidies since September, acting to shore up public finances and avoid a sovereign downgrade.

“The government’s ongoing push for fiscal consolidation is likely to limit bond sales next year,” said Nagaraj Kulkarni, a Singapore-based fixed-income strategist at Standard Chartered Plc. “That would be perceived positively by the markets and our recommendation is that investors buy 10-year government bonds.”

The yield on the 8.15 percent notes due June 2022 was little changed at 7.80 percent in Mumbai, according to the central bank’s trading system. It touched 7.78 percent earlier, the lowest level since July 2010.

Chidambaram, who has vowed to reduce the deficit to 3 percent by 2017, will aim for the smallest increase in annual debt sales in three years in the budget, according to the Bloomberg survey. The government’s borrowing target for the year starting April 1 will be set at a record 5.8 trillion rupees ($107 billion), up 4 percent from the preceding period, according to the median estimate of 16 analysts and investors.

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 7.64 percent, according to data compiled by Bloomberg.

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