India Bonds Fall As Crude Oil Prices Gain Ahead Of Weekly Auction
Friday,
15-Feb-2019
10:31 AM (IST)
Indian government bonds fell in morning trade as crude oil prices continued to rise, hurting demand ahead of a weekly auction of federal government papers. The benchmark 7.17% bond maturing in 2028 changed at 97.54 rupees, yielding 7.55, at 10:00 a.m. in Mumbai against 97.74 rupees and a 7.52% yield yesterday. The 7.26% 2029 bond was trading at 99.35 rupees, yielding 7.35%, against 99.49 rupees and a 7.33% yield yesterday. India will raise 120 billion rupees by selling five bonds today, of which 100 billion rupees of notes are of maturities of eight years and above. The debt auction comes at a time when traders are avoiding long-end bonds in view of the heavy supply in the coming weeks. The federal government will borrow an additional 360 billion rupees through four weekly auctions in March instead of the previously planned two debt sales. New Delhi has planned a gross borrowing of 7.10 trillion rupees in the next fiscal year in order to meet its fiscal deficit aim of 3.4% of gross domestic product. The nation’s state governments are scheduled to raise at least 1.05 trillion rupees by March end. Crude oil prices were trading higher for the fourth session, with the benchmark Brent crude oil contract hitting the highest in nearly three months, as sanctions from U.S. on Venezuela and Iran are expected to tighten supply, while the Organization of the Petroleum Exporting Countries is also reducing production. Optimism about resolution of trade issues between U.S. and China were also boosting crude oil prices. The benchmark Brent crude oil contract was trading 0.7% higher at $65.02 after rising to as much as $65.10 earlier today, highest since Nov. 20. India imports about 80% of its crude oil requirements. Indian bond traders are cautious after a suicide bomb attack in Kashmir that killed at least 44 Indian paramilitary personnel sparked fears of an increase in geopolitical tensions with Pakistan. India’s general elections are due by May. Prime Minister Narendra Modi-led Bharatiya Janata Party faces a resurgent opposition Congress party that won elections to three state legislatures in December. Hopes of another rate cut in April may support demand for short-end Indian bonds after retail inflation rate cooled to 2.05% in January from a year earlier, the slowest pace of expansion since June 2017. The retail inflation - a key price gauge for the Monetary Policy Committee - has stayed below the central bank’s medium-term target of 4% for six straight months. Last week, the MPC cut the key policy interest rate by 25 basis points to 6.25% as it expects inflation to stay below target over the next year despite New Delhi’s expansionary fiscal proposals.
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