India’s Bonds Advance a Second Day After Borrowing Program Cut

Indian bonds due 2022 rose for a second day after the government canceled its final debt sale of this fiscal year.

The finance ministry scrapped a plan to issue 120 billion rupees ($2.2 billion) of securities on Feb. 22, according to a statement on Feb. 18. The offering was originally planned as part of a record 5.69 trillion rupee federal borrowing program for the year ending March 31. India’s bond and currency markets were closed yesterday for a local holiday.

“The cancellation augurs well for the bond market as this shows the government’s finances have improved,” said N.S. Venkatesh, Mumbai-based head of treasury at state-run IDBI Bank Ltd. “The outlook for debt is positive as fresh supplies are ruled out until the end of March.”

The yield on the 8.15 percent notes due June 2022 fell two basis points, or 0.02 percentage point, to 7.81 percent in Mumbai, according to the central bank’s trading system. The rate earlier touched a 31-month month low of 7.78 percent.

The benchmark bonds pared gains after three Finance Ministry officials with direct knowledge of preliminary budget estimates said India plans gross market borrowing of about 6 trillion rupees in the year through March 2014, a record high.

Gross Borrowing

The increase from 2012-2013’s level will provide funds for government spending and debt repurchases as existing sovereign bonds near maturity, the officials said, asking not to be identified as the details aren’t public. Another official said borrowings will climb next fiscal year, without giving a figure. Exact numbers have yet to be finalized, all four said.

“Expectations of higher borrowing next fiscal year is keeping bonds from rallying,” said Debendra Kumar Dash, a fixed-income trader at Development Credit Bank Ltd. in Mumbai.

Finance Minister Palaniappan Chidambaram plans to cut the fiscal deficit to 5.3 percent of gross domestic product this fiscal year and to 4.8 percent in the next. Policy makers are trying to avert a credit downgrade after Standard & Poor’s and Fitch Ratings said in 2012 that they may demote India to junk status, citing the government’s shortfall and a widening current-account gap.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, rose one basis point to 7.66 percent, according to data compiled by Bloomberg.