MUMBAI: Indian government bonds fell, with yields jumping to a more than four-month high, as fears of mounting fiscal pressure stoked debt-supply concerns and triggered a market selloff.
The yield on the benchmark 10-year bond ended at 6.4920%, highest since April 3, up 5 basis points from Monday’s close of 6.4398%.
Yields move inversely to prices.
Local bonds have pared most of the financial year’s gains, despite a 75 bps cut, as weaker direct tax receipts and previously announced oil subsidies stoked fiscal concerns, traders said.
India’s net direct tax collections dropped 4% year-on-year to 6.64 trillion rupees ($75.79 billion) from April 1 to Aug 11.
New Delhi also approved compensation worth 300 billion rupees for oil marketing companies for losses related to selling subsidised cooking gas, which triggered a selloff on Friday.
“News of weak tax collections and worries that government will widen fiscal deficit and increase borrowings spooked the markets,” said Sandeep Yadav, head of fixed income as DSP Mutual Fund.
India bonds rangebound ahead of state debt supply, CPI data
“In normal circumstances, yields wouldn’t have reacted so much, but in the backdrop of tariffs and a rate pause in the last policy, the negative sentiment got amplified.”
Yields also shot up as stop losses got triggered, but the 10-year yield will find support around 6.50%, Yadav added.
Meanwhile, India’s consumer prices rose at the slowest pace in eight years in July, at 1.55%.
Traders said a 1.5% inflation figure was already priced in, so the softer data failed to lift sentiment.
Rates
India’s OIS rates ended flat Tuesday as fiscal worries prompted unwinding of receiving positions.
Longer-tenor swaps will likely continue to face mild receiving pressure amid bets of Federal Reserve rate cuts. Traders also said U.S. inflation data, due after hours, will guide the long end.
The one-year OIS rate ended at 5.51% and the two-year OIS rate at 5.455%.
The liquid five-year OIS rate settled at 5.6725%.
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