Yields likely to advance at third debt sale this month

Bonds fell, reversing earlier gains, on speculation investors will demand higher yields at a debt sale this week, the third this month.

Ten-year note yields surged from a three-week low as the government prepares to sell a record amount of bonds in the financial year that started April 1, with Rs 12,000 crore of notes scheduled for sale on April 17.

Bonds rose earlier On Monday on speculation surplus cash at banks, the biggest buyers of government debt, boosted demand.

The yield on the 6.05 per cent note due February 2019 rose five basis points to 6.75 per cent at the close of trading, according to the central bank’s trading system.

The increase is from the closing level on April 9 as the financial markets were shut on April 10 for a holiday. The price fell 0.34, or 34 paise per 100-rupee face amount, to 95.05.

“The high amount of supply that is lined up is making portfolio management difficult as there is constant pressure on yields to surge,” said Krish Ramkumar, who manages the equivalent of $1 billion in Indian debt at Sundaram BNP Paribas Asset Management in Mumbai.

“It is difficult to take a decision and have an outlook beyond a few days.”

The government on April 17 plans to sell Rs 8,000 crore of the 7.56 per cent notes due in 2014 and Rs 4,000 crore of the 8.24 per cent bonds due 2027. India plans to raise Rs 2.41 lakh crore from debt sales in the first six months of this fiscal year, the Reserve Bank of India said on March 26.

The government announced three fiscal stimulus packages since December in a bid to revive growth in Asia’s third-largest economy.

‘Considerable scope’
The economy expanded at less than 7 per cent in the last fiscal year, the slowest pace in six years, due to the global recession, Prime Minister Manmohan Singh said On Monday.

India has considerable scope to use its monetary policy further if needed to boost the economy, Singh said.

The Reserve Bank of India last month reduced the key repurchase rate to 5 per cent, the lowest in at least eight years.

Governor Duvvuri Subbarao, who has cut borrowing costs five times since mid-October, said last week that policy will be tailored to arrest a steeper-than-estimated moderation in growth.

The central bank is next due to review interest rates in Mumbai on April 21.

The cost of five-year swaps, or derivative contracts used to guard against rate fluctuations, rose.

The rate, a fixed payment made to receive floating rates, rose to 5.62 per cent from 5.45 per cent on April 9.