By Dharamraj Dhutia
MUMBAI, Sept 27 – The India government bond yield curve steepened with long-end rates seeing a small uptick on Friday after the government’s borrowing plan for the October-March period saw a reduction in the shorter end and higher supply of ultra-long notes.
Market participants said the steepening is likely to magnify in the run-up to the central bank’s monetary policy decision, aided by elevated liquidity surplus.
WHY IT’S IMPORTANT
With the government opting for more longer-term note sales, investors are now looking to buy more of the shorter-duration bonds which are more attractive.
Even though the government does not rely heavily on short-term funding, lower supply would benefit firms, especially non-banking finance companies, that borrow for two to five years from the debt market.
BY THE NUMBERS
India aims to borrow 6.61 trillion rupees ($79.05 billion) in the fiscal second half, and has also announced a lower-than-expected issuance of treasury bills.
The government will borrow 23.50% of the amount via 3-7 year bonds, while borrowing 36.50% and 37.10% via 10-15 year bonds and above 30-year bonds, respectively.
MARKET REACTION
India’s 10-year benchmark bond yield has risen 2 bps to 6.74%, while five-year 7.04% 2029 bond yield dipped 2 bps to 6.63%.
The spread has risen to 11 bps, more than double from the previous session, and is at its highest level in eight months.
KEY QUOTES
“We expect the current market positioning in 30-year bonds to gradually shift to 5-10 year segment as the rate-cutting cycle begins,” said Rahul Bhuskute, CIO at Bharti AXA Life Insurance.
“We see bull-steepening bias to be reinstated, helped by lower shorter-tenor borrowing, impending rate cuts and higher foreign positioning in sub-seven year tenors,” said Madhavi Arora, an economist at Emkay Financial.
WHAT’S NEXT
Market participants will now shift focus to global factors with U.S. personal consumption expenditure data due later in the day and non-farm payroll due next week.
These data could be key in prompting the Reserve Bank of India to change its stance in October.
($1 = 83.6130 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Eileen Soreng)
