The 10-year bonds fell, pushing yields to the highest in more than two weeks, on speculation that investors will sell the securities to free up cash for a debt auction this week.
Benchmark yields yesterday surged the most since January 9 after central bank Governor Duvvuri Subbarao said the fiscal deficit may be “substantially higher” than estimates. The comments fanned speculation India may borrow more than planned as policy makers attempt to shield the economy from the global economic slump.
“Concerns of higher supply is prompting investors to realign their portfolio,” said Baljinder Singh, a fixed-income trader at state-owned Andhra Bank in Mumbai. “Investors are going to demand a higher premium for the bonds at the auction.”
The yield on the 8.24 percent note due April 2018 rose eight basis points to 6.04 per cent at the 5:30 pm close in Mumbai, according to the central bank’s trading system. The price declined 0.60, or 60 paise per 100-rupee face amount, to 115.35. A basis point is 0.01 percentage point.
The government plans to offer Rs 4,000 crore ($818 million) of a new 10-year security and Rs 3,000 crore each of the 7.56 percent bonds due 2014 and the 6.83 percent notes maturing in 2039 at an auction on January 30, the finance ministry said yesterday.
Subbarao yesterday said that the government’s borrowing calendar may be adjusted depending on inflows and expenditure. The government has raised Rs 5,000 crore more than planned this month.
The government on January 2 said it will inject capital into banks and allow overseas investors to double purchases of debt. It announced a $4 billion package on October 24 to bolster spending, including lower taxes on consumer goods like cars, television screens and motorbikes.
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The budget deficit in the first eight months of the financial year that started April 1 reached Rs 1.7 trillion, exceeding the annual target, the government said December 31.
The federal government’s deficit may widen to as much as 8 per cent of gross domestic product in the year ending March 31, according to Suresh Tendulkar, the top economic adviser to the prime minister. The shortfall was 2.8 per cent of GDP last year.
The cost of five-year swaps, or derivative contracts used to guard against rate fluctuations, fell. The rate, a fixed payment made to receive floating rates, declined to 4.74 per cent from 4.86 per cent yesterday.
Rupee: One-week high
Rupee closed near a one-week high on speculation some exporters took advantage of the currency’s recent losses to convert overseas earnings.
A decline in the rupee, which weakened versus the dollar in four of the last five weeks, boosts the local-currency value of companies’ income from abroad. Gains in the nation’s benchmark stock index for a second day fueled speculation foreign funds will resume purchases of local equities, buoying the rupee.
“The rupee is not able to form a firm weakening trend, which is prompting exporters to convert some of their overseas receivables,” said Amit Garg, a currency trader at state-owned Allahabad Bank in Mumbai. “There appear no reasons why the currency should weaken from here on” as stocks gain.
The rupee was little changed at 48.935 a dollar at the 5 pm close in Mumbai, according to data compiled by Bloomberg. It gained 0.7 per cent yesterday, the most in two weeks.
Local exporters including Infosys Technologies, India’s second-biggest computer-services provider, and Dr. Reddy’s Laboratories, the nation’s second-biggest drugmaker, reported better-than-expected profits last quarter as the rupee weakened 3.8 per cent in the three months.
The currency tumbled 19.2 per cent in 2008, the most in 17 years, reaching an all-time low of 50.615 on December 2.
Non-deliverable forward contracts showed traders reduced bets for further weakness in the rupee. Offshore contracts indicate the rupee may trade at 49.01 to the dollar in a month, compared with expectations for 49.34 a week ago.
Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.