India govt may borrow towards cancelled auctions

NEW DELHI/MUMBAI: India's government may conduct more debt auctions after its last scheduled tender for the fiscal year on Friday, two people familiar with the matter said, to take advantage of the relatively low cost of borrowing.

The government had cancelled its last two weekly debt sales worth 240 billion rupees ($3.21 billion) each as global yields surged and as the state had achieved a comfortable cash balance for the fiscal year that ends March 31.

But in a surprise move for markets, the government on Monday said it will borrow 230 billion rupees at the last bond sale for the current fiscal year on Feb. 25.

Sources said while the government had a comfortable cash position even without further auctions, it would consider completing its planned borrowing if market conditions were appropriate.

"(We) will not commit if this would be our last borrowing for the year. We are watching the yields and will take a call accordingly," a senior official directly involved in the matter told Reuters.

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A second source said it would be recommended for the government to borrow now to take advantage of the relatively lower yields.

The 10-year benchmark yield hit a two-and-half-year high of 6.95% after the government announced a record 14.95 trillion rupees worth borrowing for 2022/23 at the Feb. 1 federal budget.

The yield, however, has retraced almost all its post-budget gains after the auction cancellations and is currently at 6.73% as of 0648 GMT.

India's finance ministry did not immediately respond to mail seeking comments.

Though the government cited the official reason for the cancelled auctions as a comfortable cash balance, sources had told Reuters at the time officials were concerned about the sharp market reaction after the announced borrowing plan.

However, traders warn new auctions could drive yields higher again.

"The belief is that we are done with the borrowing for this year. If the government decides to borrow towards the cancelled auctions later, it will lead to a lot of pressure on bonds, especially in the current geopolitical backdrop," a senior trader at a foreign bank said. "If we have more auctions this year, yields will likely climb back to 6.95% levels," a trader at a private bank said.