Biggest bond holders ditch government paper in India for state debt

Selling Indian government bonds and buying high-yielding paper issued by the nation’s states is a favourite trade among the biggest holders of sovereign debt right now.

The strategy is offering lenders extra returns of about 100 basis points at a time when concerns about an oversupply from the federal government’s record borrowing plan have damped the appeal of sovereign securities, according to ICICI Securities Primary Dealership Ltd. and Deutsche Bank AG.

“Most of the banking system is replacing sovereign debt with state-development loans or credit,” said Srinivas Varadarajan, treasury head at the Indian unit of Deutsche Bank.

India’s $807 billion