Indian Bonds Halt Two-Day Drop as Higher Yields Lure Investors

  • Global investors are pulling funds from debt as growth slows
  • Concern about achieving deficit goal weighs on sentiment

India’s 10-year sovereign bonds halted a two-day drop on speculation the recent increase in yields attracted buyers.

The yield on the securities due May 2025 fell one basis point to 7.76 percent in Mumbai, after rising six basis points over the previous two days, prices from the central bank’s trading system show. Its close of 7.77 percent on Monday was the highest since Dec. 15, as bonds declined on concern slowing economic growth will put the government’s budget-deficit target at risk and prompt it to increase debt sales.

“Value buying perhaps seem to be the reason for the gain in bonds,” said Harish Agarwal, a Mumbai-based fixed-income trader at FirstRand Ltd. Markets will be keenly watching for any clues from the government about how it meets the deficit goal for next year, he said.

The government may have to reassess its fiscal projections for the year starting April 1, the Finance Ministry said in a review published on Friday, as the passage of crucial bills including a goods and services tax stalls in parliament. India lowered its estimate for the economy’s expansion in the 12 months through March this month amid a slowdown in China. Global funds are already pulling funds from the South Asian nation’s bonds.

India’s gross domestic product will increase 7 percent to 7.5 percent in the year through March, down from a previous forecast of 8 percent, Finance Minister Arun Jaitley told lawmakers this month.

The existing deficit target is to reduce it to 3.9 percent of GDP by March and 3.5 percent the following year. Soumyajit Niyogi, an interest-rate strategist at SBI DFHI Ltd., warned in an interview on Monday that the fiscal slippage could add 500 billion rupees ($7.5 billion) to gross borrowing.

Overseas investor holdings of Indian debt dropped 36.2 billion rupees this month, adding to the 46.9 billion rupees outflow in November that was the biggest since May, according to data from the National Securities Depository Ltd.

The rupee closed little changed from Monday at 66.33 a dollar, according to prices from local banks compiled by Bloomberg.

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