India bonds seen down as large state debt supply spoils mood

MUMBAI: Indian government bonds could pare some of their recent gains on Friday as states flagged a sizable borrowing for next week despite expectations for a steep supply cut, while focus would remain on the central government bond sale later in the day.

The benchmark 10-year 6.48% 2035 bond yield is likely to be in a 6.63%-6.67% range until the debt auction, a trader with a private bank said.

It ended at 6.6352% on Thursday. Bond yields move inversely to prices.

Indian states will raise 398 billion rupees ($4.35 billion) through bond sales on Tuesday, and even though the quantum is lower than the earlier scheduled 473 billion rupees, traders were eyeing a deeper cut on the lines of a reduction seen this week.

Earlier this week, states reduced their planned supply by 256 billion rupees, and a repeat of such an action was largely priced in.

“This is too unpredictable, and it has been a regular issue with state debt supply, as it tends to be highly volatile compared to pre-announced plans, and the market is not able to position itself correctly,” the trader said.

States had announced a record borrowing calendar of 5 trillion rupees for the January-March period, but have gone ahead with 72% of their planned January borrowing.

Traders will also eye demand at the weekly central government debt sale, as New Delhi aims to raise 330 billion rupees, which includes new three-year and seven-year papers.

Still, strong bets that the Reserve Bank of India would continue to buy bonds in the secondary market will help cap losses.

Data showed that investors in the “others” category, which includes insurers, pension funds, corporate firms and the RBI as major constituents, net bought over 85 billion rupees of bonds over the last three days.