India 10-Year Yield Holds Near Two-Week Low as Debt Supply Cut

India’s 10-year sovereign bond yield held near a two-week low after the nation cut its borrowing plan through September, leading to optimism demand for existing securities will rise.

The government plans to sell 120 billion rupees ($2 billion) of debt at each of the next five weekly auctions, the Reserve Bank of India, which manages the borrowing program, said in an Aug. 14 statement. An issuance calendar on the RBI’s website had indicated sales of about 140 billion rupees each week. Local bond and currency markets were shut on Aug. 15 and yesterday for holidays.

The yield on the 8.4 percent bonds due July 2024 was at 8.53 percent in Mumbai today, little changed from 8.52 percent on Aug. 14, according to the central bank’s trading system. It slid 12 basis points last week to the lowest level since Aug. 4.

“The reduction in debt supply is a short-term positive for the bond markets as it would boost liquidity,” Harish Agarwal, a fixed-income trader at FirstRand Ltd. in Mumbai, said by phone. “It needs to be seen what happens after September, and whether the total borrowing for the year ending in March also declines. I don’t see the 10-year yield dropping below 8.50 percent for now.”

The government also reduced the size of weekly treasury bill sales in the same period, according to a separate RBI statement. Finance Minister Arun Jaitley set the gross borrowing for the year through March 2015 at 6 trillion rupees in last month’s budget statement.

Ten-year bonds completed their first weekly advance in three on Aug. 14 after India sold 80 billion rupees of bonds compared with 140 billion rupees in the previous auction.

One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, rose one basis point to 8.46 percent, data compiled by Bloomberg show. They fell six basis points last week.

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