Indian bonds yields rise; H2 borrowing plan awaited

MUMBAI: Indian federal bond yields rose on Tuesday as investors trimmed positions ahead of the government's announcement of its borrowing plan for the second half of the fiscal year, which is expected sometime this week.

Analysts expect an additional 500 billion rupees ($9.34 billion) in borrowing in the fiscal year ending in March 2013, on top of the 5.7 trillion rupees budgeted, a Reuters poll out on Tuesday showed.

The poll respondents also expect the government to post a fiscal deficit of 5.8 percent, wider than its target of 5.1 percent, despite recent reforms meant to attract foreign investor inflows and sell state stake sales in companies.

However, the government may delay announcing additional borrowing this week for fear of upsetting markets, and stick for now to its current target to raise 2 trillion rupees in the October-March period, traders said.

"Trimming of positions before the calendar pushed yields up. I expect the 10-year bond yield to hold between 8.15 and 8.20 percent until the announcement," said Anuj Tagra, a dealer with state-run Union Bank of India.

The benchmark 10-year bond yield closed up 1 basis point at 8.17 percent.

Total volume on the central bank's electronic trading platform was at a moderate 244.4 billion rupees ($4.6 billion).

Trading turned volatile mid-session, when yields shot up from a session low of 8.14 percent, after media reports quoted Power Minister Veerapa Moily as saying the restructured debt from a bailout of state-owned power distribution companies would qualify for the banks' statutory liquidity ratio.

However, Power Secretary P. Uma Shankar clarified later the debt would not be included among the government-approved securities that banks are mandated to hold as part of their deposits.

Traders are also expected to retain their focus on potential additional reforms from the government, which would raise expectations the central bank would lower interest rates by its policy review in October.

The benchmark five-year OIS rate rose 1 bp higher to 7.13 percent, while the one-year OIS rate rose 2 bps to 7.70 percent, due to some paying interest from companies in late trade, dealers said.

Both the 1-year and 5-year rates however, could fall by around 5 bps each by the end of the week on rate cut bets, dealers added. ($1 = 53.5100 Indian rupees)