India aims to borrow 8.88 trillion rupees ($108.12 billion) through the sale of bonds in the first six months of fiscal year 2024, which is over 7% higher when compared with the previous year. Nearly 34% of the borrowing would be in the 30-year and 40-year bonds, and another 17% in the 14-year segment. The supply of such securities was 43% last year. Ideally, there would be some widening of the spread between the 10-year and longer-end bonds compared with the near-flat levels being seen currently, said Aneesh Srivastava, chief investment officer of Star Health and Allied Insurance.
"Focus would also remain on what action global central banks and the Reserve Bank of India take, and how the growth and inflation trajectory would guide yields."
India's 10-year benchmark bond yield was at 7.31%, while the
liquid 14-year 7.41% 2036 bond yield was at 7.37% on Friday.
Yields on the 30-year and 40-year papers largely remained below
the 14-year bond.
Demand from insurance companies, which have been major absorbers of such debt, is expected to be impacted after the new taxation scheme becomes applicable from April 1. According to the new rules, some life insurance premiums will become taxable. This is likely to impact demand for ultra-long 30-year and 40-year bonds, said Gaura Sen Gupta, India economist at IDFC First Bank.
Market participants do not expect any major selloff in the up to 10-year segment as interest rates are near peak and another rate hike from the central bank is already factored in. The RBI is expected to hike the repo rate by 25 basis points to 6.75% on April 6, before embarking on a prolonged pause, according to a Reuters poll of economists.
Investors may also turn more bullish in the up to five-year part of the curve, as supply is lower than expected with the yield on the 7.38% 2027 bond at 7.18%.
"The five-year bond yield should ease to 7% given carry, as
funding rates are peaking and there is little headwind from
supply," said Ashish Agrawal, head of FX and EM macro strategy
research, Asia at Barclays.
($1 = 82.1300 Indian rupees)
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Govt's planned supply of bonds in Apr-Sep ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Dharamraj Dhutia; Editing by Sohini Goswami)
