India’s 10-year bond yield hits 6.70% first time this fiscal year on supply glut

MUMBAI: Indian government bonds fell further in early trade on Tuesday, after a sharp plunge in prices a day earlier, ahead of heavy state debt supply later in the day and worries over record debt sales in the last quarter of the financial year.

The benchmark 10-year yield was at 6.6952%, as of 10:00 a.m. IST, after ending at 6.6678% on Monday. Earlier in the day, the yield hit 6.6995%, its highest level since March 17.

Bond yields rise when prices fall.

“Every buying attempt is leading to stop losses getting hit, and in such a market, it is very risky to deal in decent size,” a trader with a state-run bank said. Indian states aim to borrow 332.20 billion rupees ($3.71 billion) via debt sale later in the day, nearly 25% higher than the scheduled 268.55 billion rupees.

Investors anticipate a similar move next week.

Borrowing costs for India’s central and state governments are set to climb further in January-March amid heavy supply, waning prospects for further monetary policy easing, and weakening investor demand.

Analysts estimate the aggregate debt supply of around 8.1 trillion rupees between January-March, including 3.1 trillion rupees from New Delhi and about 5 trillion rupees from states.

Traders further said that the central bank’s debt purchase of 1 trillion rupees was ineffective, as it did not replicate in replacement demand.

While local demand remains uncertain, selling by foreign investors is further adding to the pressure, with net exits for the month at a towering $1.4 billion.