Asia's worst-performing sovereign bonds find a buyer in ICICI Prudential

Yields on the benchmark 10-year debt climbed to a two-year high of 7.82% last month

The seven-month slide in India’s sovereign bonds has convinced the state-owned banks, the biggest holders of debt, to remain on the sidelines.
 

ICICI Prudential Life Insurance Co., one of the country’s largest private insurers, sees things very differently. With yields recently nearing 8 per cent, Manish Kumar, chief investment officer at the firm, says it’s time to go long.
 

“A yield of 7.7 per cent to 7.8 per cent is a good yield to invest into,” Kumar, who oversees the equivalent of $22 billion of assets, said in an interview in Mumbai. “While the concerns around the fiscal deficit are genuine, they are also priced in to a good extent.”

Bulls like Kumar are hard to find in a market where a shortage of buyers is contributing to a downward spiral in bond prices. State lenders have been selling 5.3 billion rupees of government debt on average every day this year, hurt by losses on their books, data from the Clearing Corp. of India show.
 

Yields on the benchmark 10-year debt climbed to a two-year high of 7.82 per cent last month amid concerns the fiscal deficit may widen after the government laid out an ambitious public-spending plan in the Feb. 1 budget. Fears that the central bank may tighten policy this year as economic growth strengthens have fueled the selloff.

“The best case is no rate hike and the worst is a hike sometime in the fiscal year starting April 1, depending on the inflation trajectory,” said Kumar. “One rate hike is factored in.”

ICICI Prudential will decide whether to increase the duration of its holdings after assessing the progress of the monsoon, a key barometer that determines food inflation in India. The insurer cut the duration to 3.5-to-four years over the past six months, down from last year’s average of 6.5-to-seven years, Kumar said.