States Selling Record Debt Spark Relief Rally in Indian Bonds

Indian sovereign bonds climbed the most in a month as state governments sold a record amount of debt at Tuesday’s auction, spurring optimism that demand for debt is intact.

Nineteen states sold 263.9 billion rupees ($4 billion) of notes, the most at a single sale in data from India Ratings & Research Pvt. going back six years, even as global attention is focused on the U.S. presidential election. Benchmark 10-year bond yields rose in each of the last four weeks, with underwriters having to step in to buy unsold government debt for the first time since January at an Oct. 28 auction.

“The market was worried about the large size of state loans,” said Sandeep Bagla, Mumbai-based associate director at Trust Capital Services India Pvt. “Once the sale went through, the market heaved a sigh of relief and recovered some of the losses made in the last few days.’’

The yield on government notes due September 2026 dropped four basis points on Tuesday, the most since Oct. 5, to 6.80 percent, according to the Reserve Bank of India’s trading system. The rupee rose 0.2 percent to 66.62 per dollar, the biggest gain in three weeks, prices from local banks compiled by Bloomberg show. Emerging-market currencies strengthened with opinion polls showing Hillary Clinton ahead of Donald Trump as Americans prepare to vote in the presidential election.

Read: In India, States Are Beating Modi in Boosting Growth Rate

Traders have been sitting “light” for some time before the U.S. election and been wanting to re-enter positions as the probability of Clinton winning is seen higher, said Gopikrishnan MS, Mumbai-based head of foreign exchange, rates and credit for South Asia at Standard Chartered Plc. “The state loan cutoffs were on expected lines.”

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