India Bond Yields Lower As Value Buying Offsets Rating Cut Impact

Tuesday,   02-Jun-2020   01:20 PM (IST)

Indian federal government bond yields turned lower in afternoon session, on value buying as investors shrugged off a credit rating downgrade by Moody's Investors Service. The benchmark 6.45% bond maturing in 2029 changed hands at 102.96 rupees, yielding 6.03%, at 1:00 p.m. in Mumbai against 102.87 rupees, yielding 6.04%, yesterday. Earlier today, the yield rose to 6.09%, the highest since May 15. The 5.79% 2030 bond was at 99.68 rupees, yielding 5.83%, against 99.76 rupees and a 5.82% yield yesterday. The Indian rupee was at 75.53 to the dollar against 75.54 yesterday. Moody’s cut India’s sovereign rating by a notch to Baa3, the lowest investment grade score, citing challenges for policymakers through a period of weak growth amid a worsening fiscal situation and financial sector stress. The ratings agency kept the rating outlook negative, which reflects risks from “potentially deeper stresses in the economy and financial system.” Indian states will sell 185 billion rupees of bonds today, sharply higher than the 88 billion rupees scheduled in the borrowing calendar, but traders expect state-run banks to dominate the auction. Moody’s said that the downgrade was in the context of the coronavirus pandemic but was not driven by it, but the pandemic amplifies vulnerabilities in the country’s credit profile that were present and building prior to the shock. The negative outlook signals that a further downgrade remains a possibility, William Foster, a vice president and senior credit officer at Moody’s, told CNBC-TV18. India’s fiscal deficit for the last financial year came in at 4.59% of gross domestic product, sharply wider than the government’s revised target of 3.8%. Market participants expect a wider fiscal slippage this year, on slower revenues after the coronavirus pandemic brought most sectors in the economy to a grinding halt. New Delhi has already hiked its borrowing plan by nearly 54% to 12 trillion rupees in this financial year, but weaker growth dynamics have raised calls for further spending which in turn may lead to another round of additional borrowing, traders said.