MUMBAI: Indian bonds edged lower on Wednesday after the top court scrapped almost all of the coal blocks allocated to companies over the past two decades, raising concerns the country would need to import more coal to make up the shortfall.
More imports threaten to widen the country's trade deficit and thus the current account balance, but some of the concerns were allayed given India is expected to re-auction the blocks next year. Coal India is expected to step in to manage the scrapped coal blocks in the interim.
Caution also prevails ahead of the government's announcement on Friday of its borrowing for the second half of the fiscal year ending in March, although an 80-billion-rupee ($1.31 billion) debt buyback on Thursday could help ease sentiment.
"The Supreme Court has said the working mines can continue to function for six months and Coal India has also been asked to meet other needs," said Alok Singh, chief investment officer - fixed income at BoI AXA Asset Management in Mumbai.
"There is still a lot of confusion and it is not certain that the country's import bill will go up."
The 10-year benchmark bond yield ended up 1 basis point at 8.48 versus Tuesday's close of 8.47 percent.
Bonds are expected to remain range-bound in the coming days because of the Reserve Bank of India's policy review on Sept. 30.
The central bank will probably wait until the April-June quarter of next year to loosen policy as it wants to cool inflation before trying to spur growth, a Reuters poll showed on Wednesday.
In the overnight indexed swap market, the benchmark five-year swap rate closed up 1 bp at 7.84 percent, while the one-year rate ended flat at 8.40 percent.
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