India’s 10-year sovereign bonds pared their weekly gain Friday after underwriters had to buy unsold debt at an auction in the first such instance since August, signaling investors sought higher yields.
Primary dealers picked up 11.48 billion rupees ($180 million), or about a third of the notes maturing 2032 offered by the government at Friday’s sale. They bought 15.61 billion rupees, or about half of the 2044 debt. India also missed its sale target at a Wednesday auction of treasury bills for the first time since February after a global selloff in bonds had seen local yields surge in the previous two weeks.
The yield on benchmark notes due July 2024 rose one basis point to close at 7.95 percent Friday, rebounding from the day’s low of 7.91 percent, according to prices from the central bank’s trading system. It fell three basis points, or 0.03 percentage point, from May 8, after climbing 19 basis points in the two weeks before. The rupee had its best week since March.
“The Reserve Bank of India appears to be signaling lower yields,” Anand Bagri, Mumbai-based senior vice president and head of domestic treasury markets at RBL Bank Ltd., said by phone. “The market is also slightly nervous after large selling by foreign investors in the last few sessions amid the rise in U.S. Treasury yields.”
Overseas funds have sold $1.46 billion of rupee debt so far in May, turning net sellers after 12 straight months of buying, as a rout wiped more than $400 billion off the value of fixed-income securities around the world in about a month.
Ten-year notes advanced this past week on speculation slowing inflation will give the central bank more room to cut interest rates. Consumer prices rose 4.87 percent in April from a year earlier after a 5.25 percent increase in March, data showed Tuesday. The RBI next reviews policy on June 2, following cuts to the benchmark repurchase rate in January and March.
“We continue to expect another 25 basis points cut on June 2 and recognize the risk of further cuts in the repo rate beyond our June cut forecast if macroeconomic data remain supportive,” Barclays Plc analysts Siddhartha Sanyal in Mumbai and Rahul Bajoria in Singapore wrote in a research note Friday.
The central bank, which manages the government’s borrowing program, rejected all bids at an auction for 60 billion rupees of 364-day bills on Wednesday. It accepted 60.96 billion rupees of offers for the 91-day notes, less than the 80-billion rupee goal. That was the fourth failed auction this year. The government sold 30 billion rupees of 2020 bonds and 70 billion rupees of 2026 debt as planned at Friday’s sale.
“It’s clear that the RBI is not comfortable with the rise in bond yields,” said RBL Bank’s Bagri. “There is a decent chance of an interest rate cut before the policy.”
The rupee climbed 0.7 percent from May 8 to 63.5150 a dollar, prices from local banks compiled by Bloomberg show. The currency, which rose 0.2 percent on Friday, has weakened 0.7 percent in 2015.