MUMBAI: Indian government bonds extended losses on Tuesday, with the benchmark bond yield spiking to a five-month high, as sentiment soured amid a larger-than-planned state debt supply at a time when demand remains tepid.
A slew of events has hit demand for government bonds, including the government’s tax overhaul and credit-rating firm Fitch maintaining India’s sovereign rating, citing high fiscal deficit and debt.
The 10-year bond yield was at 6.6112% as of 10:20 a.m. IST, compared with its previous close of 6.5967%.
Earlier in the day, the yield hit 6.6212%, its highest since March 26.
Indian states are set to raise 341.5 billion rupees ($3.9 billion) through the sale of bonds later in the day.
The quantum is sharply higher than the scheduled 208.5 billion rupees.
“There is no positive trigger in sight and demand-supply dynamics are broken,” a trader at a private bank said.
“We will see how the state debt auction goes for cues on direction of yields.”
The yield has jumped over 20 basis points since the government announced sweeping cuts in goods and services tax, erasing bond price gains in this financial year.
Bond yields move inversely to prices.
Market participants are also concerned about a widening demand-supply mismatch as the government continues to borrow at elevated rates, traders said.
New Delhi is due to raise 320 billion rupees through the sale of 15-year and 40-year bonds on Friday, which would also test investor appetite.
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