India’s Bonds Decline as Yields at 31-Month Low Deter Investors

India’s bonds fell on speculation yields at the lowest level in 31-months will deter buyers.

The yield on the benchmark note due 2022 rose before Finance Minister Palaniappan Chidambaram unveils the budget on this week for the year beginning April 1. The rate dropped earlier after the central bank announced that it will purchase as much as 100 billion rupees ($1.9 billion) of government securities due in 2014, 2016, 2022 and 2025 on March 1.

“Investors probably sold taking advantage of gains in bonds earlier,” said Rajeev Radhakrishnan, head of fixed income at SBI Funds Management Pvt. that manages the equivalent of $10 billion in Indian assets. “Some people also preferred to reduce positions before the budget.”

The yield on the 8.15 percent notes due June 2022 rose two basis points, or 0.02 percentage point, to 7.82 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 will present his annual budget to parliament on Feb. 28, will seek to narrow the fiscal 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.

In the budget for railways presented today, Rail Minister Pawan Kumar Bansal said he plans to link passengers fares and freight rates with fuel prices to cut more than $4.5 billion of losses stemming from below-cost tariffs.

Charges for shipping commodities on the network will be linked to fuel prices starting April 1, said Bansal.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, rose one basis point to 7.63 percent, according to data compiled by Bloomberg.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE