Bonds in India Erase Gains as Yield at 4-Week Low Deters Buyers

Updated on
  • Profit-booking, higher U.S. Treasury yields weigh: HDFC Life
  • Notes rallied earlier in the day on government’s borrowing cut

Indian sovereign bonds reversed an advance as a slide in the benchmark 10-year yield to a four-week low dissuaded investors.

Rupee-denominated notes rallied early Tuesday after the government unexpectedly lowered its borrowing target for the financial year. The securities shed gains later in the session as U.S. Treasury yields jumped amid a stronger dollar. European government bonds also declined.

The yield on local notes ended four basis points higher at 6.45 percent, snapping a four-day slide during which it fell 21 basis points, data compiled by Bloomberg show. It dropped to 6.32 percent earlier, the lowest since Dec. 7.

“We are seeing profit taking after a sharp rally over the past few days,” said Badrish Kulhalli, a fixed-income fund manager at HDFC Standard Life Insurance Co. in Mumbai. “The rise in the U.S. dollar and Treasury yields also signal resumption of the so-called Trump trade.”

India’s government will sell notes worth 660 billion rupees ($9.7 billion) through six equal weekly auctions in the period through March 31, the Reserve Bank of India said in a statement late on Monday. That’s 180 billion rupees less than what was planned earlier in the borrowing calendar released in September. The revision was made “after reviewing the cash position” of the central government, according to RBI’s statement.

“This is clearly a surprise for the markets,” said Nagaraj Kulkarni, a senior rates strategist at Standard Chartered Plc in Singapore. “There seems to be a positive surprise on the government’s revenue side.”

Read: Bonds in India See Best Year Since 2008 on Modi, RBI Surprises

Indian bonds rallied the most in emerging Asia last year, with the 10-year yield plunging 125 basis points, its biggest drop in eight years.

The rupee weakened for a second day on Tuesday, falling 0.2 percent to 68.33 a dollar, according to prices from local banks compiled by Bloomberg. It slid to 68.3450 earlier, the lowest level since Dec. 2.