Bonds cool to govt’s stiffer borrowing

Bonds cool to govt’s stiffer borrowing
The Economic Times, July 17, 2009 Page 9

Centre To Borrow Rs 2.99 Lakh Crore In First Half, 24% Higher Than Earlier Estimate

Our Bureaus NEW DELHI MUMBAI

THE government bond market shrugged off the Centre’s revised borrowing schedule to raise Rs 1.1 lakh crore in the next 10 weeks through long-dated bonds, as the amount was in line with expectations. The Centre will borrow Rs 2.99 lakh crore from markets, 24% higher than its earlier estimate, for the first half of this fiscal.

The revised schedule would raise the total target for the first half of this fiscal to Rs 3 lakh crore against Rs 2.4 lakh crore as per the original schedule, and is eventually expected to push up yields. After market hours, the central bank announced that of the next 10 auctions (after Friday), seven will raise Rs 12,000 crore for the government while there will be three auctions of Rs 11,000 crore, Rs 8,000 crore and Rs 7,000 crore each. A Rs 12,000-crore bond auction is scheduled on Friday.

“We have already done and announced Rs 1,89,000 crore...So, the balance is Rs 1,10,000 crore, which we are going to be doing up to September 30 in 10 tranches,” RBI deputy governor Shyamala Gopinath told reporters after meeting finance secretary Ashok Chawla.

After her statement, benchmark 10-year bond yields declined to end at 6.79%, down 7 basis points. When yields fall, prices rise. “It’s unlikely that the market will get spooked by the new borrowing schedule, as it was more or less expected,” said Sandeep Bagla, senior vice-president at ICICI Securities Primary Dealership. “Excess supply will remain an issue, but global factors like US treasury yields and crude prices will also hold the key,” he added.

Ms Gopinath also sought to assuage market fears over the excess supply of government paper. “There is ample liquidity in the system. We will manage the borrowing programme in a nondisruptive manner.”

The government has raised Rs 1.77-lakh crore from 13 bond auctions up to July 10 and borrowed more than originally planned in the last seven sales.

The central bank also reiterated its commitment to open market operations wherein it buys bonds directly from traders. The rupee gave up some of its early gains to end at 48.74 against the dollar, weaker than Wednesday’s close of 49.64 with stocks hit by profit booking.