India To Sell Fewer Bonds Before Elections, Index Inclusion

(Bloomberg) --

India will sell fewer bonds than estimated as policymakers rein in spending ahead of elections and inclusion of the nation’s debt in global indexes.

The administration will sell bonds worth 7.5 trillion rupees ($90 billion) in the first half of the fiscal year starting April, the finance ministry said in a statement on Wednesday. That’s lower than 8.5 trillion rupees estimated in a Bloomberg survey. 

A new 15-year bond is being introduced based on global best practices and feedback from the market, the government said. 

The sale will come at a time when foreign funds have flocked to Indian debt ahead of their inclusion in the JPMorgan Chase & Co.’s global indexes in June. Demand from local investors has also been robust, with insurance and pension funds snapping up longer-dated paper to lock in yields.

The borrowing is lower as “the government may spend less as we are in election season and the code of conduct is in place,” said Debendra Dash, a trader at AU Small Finance Bank.

The borrowing plan accounts for 53% of its full-year target of 14.13 trillion rupees, lower than the 55%-60% the government typically borrows in the first half. 

Higher Cash

The borrowing is lower as the government doesn’t want to sit on unused cash, Finance Secretary TV Somanathan told reporters in New Delhi. 

Foreign inflows of about $9 billion into the so-called Fully Accessible Route bonds since the inclusion announcement in September have helped ease Indian yields at a time when US yields have surged. The 10-year yield has dropped by about 10 basis points so far this year, while similar-dated US yield is up by about 35 basis points.

“Demand-supply dynamics are favorable this year, along with external demand due to bond index inclusion,” said Pankaj Pathak, portfolio manager at Quantum Asset Management Co. “This on the margin is positive for bonds”

Goldman Sachs Group Inc. said it has a positive outlook on Indian sovereign bonds, noting in a recent report that the peak tightness in the banking system liquidity has passed. The RBI has conducted multiple short-dated operations aimed at lowering the interbank call rate to align with the policy repo rate over the last few months, it wrote.

The RBI will decide on interest rates April 5 and is expected to remain on pause.

Here’s the breakup of first-half borrowing plan:

(Updates with official’s comment in the seventh paragraph)

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