India bonds seen under pressure ahead of debt sale, budget remains key focus

MUMBAI: Indian government bonds may experience jitters in their final trading session before the federal budget announcement, as worries about supply persist, with the government set to sell fresh debt on Friday.

The benchmark 10-year 6.48% 2035 bond yield is likely to be in the 6.68%-6.72% range till the debt auction, according to a private bank trader.

The yield closed at 6.6984% on Thursday. Bond yields move inversely to prices.

New Delhi will sell benchmark paper worth 320 billion rupees ($3.48 billion) later in the day, and the auction comes at a time when bonds are under selling pressure amid an unfavourable demand-supply situation.

“Bears may attempt to test 6.75% on the benchmark, but the move will be dictated by the cutoffs,” the trader said.

“Caution ahead of the budget announcement, where record borrowing is expected to be announced, remains the main theme.”

India will announce the budget for the next financial year on Sunday, with borrowing numbers and fiscal deficit target to remain in the limelight.

Market remains under pressure as an estimated record 30 trillion rupees of central and state government bond supply is set to hit the market in the next fiscal year, which could further complicate the RBI’s task of managing a weakening rupee and rising rates.

The central government’s gross borrowing need is likely to rise to 16.5 trillion rupees, with net borrowing still quite elevated above 11 trillion rupees and state-level borrowing remaining high, MUFG said in a note.

Meanwhile, the Reserve Bank of India has completed infusing more than 10 trillion rupees into the banking system, which is a record for any financial year.