Indian Bonds Drop as Top Court Rules Coal Allocations IllegalKartik Goyal
India’s 10-year government bonds fell the most in three weeks after the nation’s top court ruled allocation of coal mines to companies since 1993 as illegal, spurring concerns any cancellation may hurt economic growth.
The policy of allocating 218 mines for captive use without auctioning them didn’t follow transparent norms, a three-judge bench of the Supreme Court headed by Chief Justice R.M. Lodha ruled today, after a report by the nation’s main investigating agency. The court on Sept. 1 will hear arguments regarding termination of the mining licenses.
“The bonds extended declines on concern any cancellations may hurt investments and impact the pace of economic growth,” said Debendra Kumar Dash, a fixed-income trader at DCB Bank Ltd. in Mumbai. “The markets are also concerned whether the government will raise the investment limit for the FIIs in the the government debt.”
The yield on the 8.4 percent bonds due July 2024 rose four basis point, or 0.04 percentage point, to close at 8.56 percent in Mumbai, according to the central bank’s trading system. The rate has climbed eight basis points from this month’s low of 8.48 percent on Aug. 20.
India’s stocks are a better bet than bonds as the fastest inflation in Asia erodes fixed-income returns and deters interest-rate cuts, Pankaj Vaish, Mumbai-based head of markets for South Asia at the third-biggest U.S. bank, said in an Aug. 22 phone interview from New York.
One-year interest-rate swaps, derivative contracts used to guard against swings in funding costs, advanced one basis point to 8.46 percent, data compiled by Bloomberg show.