Sovereign bonds face barrier as debt-ridden PSBs sell into every rally

Public-sector banks have cut holdings by a net Rs 312 billion this quarter, even as sovereign bonds are poised for their first quarterly advance in more than a year

India’s sovereign bonds face a conundrum. Every rally hits a wall of selling as the nation’s state-owned lenders, the biggest holders of debt, head for the exit.

Public-sector banks have cut holdings by a net 312 billion rupees ($4.4 billion) this quarter, even as sovereign bonds are poised for their first quarterly advance in more than a year.

They could be forgiven for selling out. The yearlong slide in rupee bonds has left lenders with billions of rupees in losses, prompting them to sell on rallies. State Bank of India, the biggest, saw profits from treasury operations plunge 99 percent